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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended September 30, 1999; or
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from ____________ to ____________.
Commission File Number 0-10039
DYNAMICWEB ENTERPRISES, INC.
(Name of Small Business Issuer in its Charter)
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<S> <C>
New Jersey 22-2267658
(State or Other Juris- (I.R.S. Employer
diction of Incorporation) Identification No.)
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Fairfield Commons
271 Route 46 West
Building F
Suite 209
Fairfield, New Jersey 07004
(Address of Principal Executive Offices)
Registrant's Telephone Number: (973) 244-1000
Securities registered under Section 12(b) of the Exchange Act:
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Name of Each Exchange
Title of Each Class on Which Registered
None None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.0001 per share
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No .
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Issuer's revenues for fiscal year ended September 30, 1999: $3,045,000.
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As of December 21, 1999, the aggregate market value of our company's common
stock (based upon the average sales prices on such date) of the Registrant held
by nonaffiliates was $37,183,000.
Number of shares of our company's common stock outstanding at December 21, 1999:
3,666,985.
Transitional Small Business Disclosure Format: Yes No X
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PART I
ITEM 1: DESCRIPTION OF BUSINESS
DynamicWeb Enterprises, Inc. (our company) provides services and software
that facilitate business-to-business e-commerce between buyers and sellers. Our
company's services include the provision of the necessary infrastructure and
operational services to facilitate electronic transactions between buyers and
sellers; and consulting services to businesses that wish to build and/or operate
their own e-commerce infrastructure.
On December 1, 1999, our company entered into an agreement with eB2B
Commerce, Inc. to merge the two companies. The agreement is described below. See
"ITEM 1: BUSINESS DEVELOPMENT -- Recent Developments." eB2B Commerce, Inc.,
which is a privately held company with offices in New York City and incorporated
in Delaware, also engages in business-to-business e-commerce.
The executive offices of our company are located at 271 Route 46 West,
Building F, Suite 209, Fairfield, New Jersey 07004. Our company's telephone
number is (973) 244-1000 and our facsimile number is (973) 575-9830. For more
information, you may visit our company's website at www.dynamicweb.com.
BUSINESS OF ISSUER
INDUSTRY BACKGROUND
The success of the Internet in streamlining business-to-consumer
transactions is leading companies to seek similar efficiencies in their
business-to-business transactions. Companies are increasingly seeking to
improve their operating efficiency through electronic commerce solutions.
Forrester Research estimates that U.S.-based business-to-business electronic
commerce will increase from $109 billion in 1999 to $1.03 trillion in 2003,
and that by 2003 the market for business-to-business transactions will be more
than ten times larger than the business-to-consumer transactions market.
Electronic Data Interchange ("EDI") is a specific form of electronic
commerce, consisting of a standard protocol for electronic transmission of data
between a company and a third party. In an EDI transaction, the computers of the
buyer and seller communicate and exchange the relevant information using an
agreed-upon or standard format. A typical example of EDI is electronically
placing a purchase order for merchandise with a vendor, and having the vendor
electronically confirm the order and produce an invoice when the goods are
shipped. In an earlier stage of electronic commerce, companies that wanted to
conduct business electronically were required to have a special type of computer
network called a value-added computer network or "VAN."
The emergence of the Internet as an additional means of conducting
electronic commerce has revolutionized the way businesses operate and interact
with their customers and trading partners by creating new, highly efficient
channels of communication and distribution. The Internet gives small to
medium-size buyers and sellers access to the efficiencies associated with
traditional EDI systems. In
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addition, the Internet enables buyers and sellers to interact with a greater
number of potential trading partners.
OUR COMPANY'S PRODUCTS AND SERVICES
Our business is providing services and software that facilitate
business-to-business e-commerce between buyers and sellers of direct goods,
which are the goods or materials that businesses utilize in their core business.
For instance, a tire purchased by an automobile manufacturer is a direct good.
Conversely, a fax machine purchased by the same company, for general use in the
office, is an indirect good.
Our services fall into two general categories:
e-commerce network services, including network development and
transaction/subscription processing, where we provide the necessary
infrastructure (hardware, software and communications links) and
operational services to facilitate electronic transactions between
buyers and sellers; and
professional consulting services where we provide expertise to
businesses that wish to build and/or operate their own e-commerce
infrastructure.
We market and sell four principal electronic commerce technology solutions:
(1) EDIxchangeBuy'sm' and EDIxchangeSell'sm'
EDIxchangeBuy and EDIxchangeSell include the design, development and
implementation of customized business-to-business e-commerce web sites. These
web sites facilitate e-commerce between buyers and sellers of direct goods,
resulting in improved inventory, increased customer satisfaction, and improved
productivity within a supply chain. The service allows our customer's EDI
systems to communicate with other systems that do not use EDI. The service
translates between purchase orders delivered over EDI systems and purchase
orders sent via basic web browsers like Netscape or Microsoft Internet Explorer.
In addition, this service supports the use of a broad array of documents,
including catalogs with product information such as prices, descriptions and
other data codes. The availability of this documentation enables customers to
easily update, modify and customize their purchases.
(2) EDIxchangeOutsource'sm'
EDIxchangeOutsource includes the data processing equipment, software and
technical people needed to manage and operate an EDI infrastructure. These
services include security, mapping, translation, mail boxing and routing of
business documents between our customers, their EDI computer networks and their
trading partners. In essence, our company acts as an off-site EDI department on
a customer's behalf. This service offers the flexibility both to process
received (inbound) business documents in any format, and to send out (outbound)
the same documents in the trading partner's specific requested format. The
service can manage and optimize a client's entire EDI operation without
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the requirement for specialized software, personnel or training.
(3) EDIxchangeConnect'sm'
EDIxchangeConnect, a combination of electronic commerce software and
services, is developed for businesses that require their older computer systems
to handle EDI transactions. The software formats electronic transactions, such
as purchase orders, invoices and shipment notifications, into commonly preferred
data formats. Combined with our company's EDIxchangeOutsource service,
EDIxchangeConnect provides a powerful e-commerce solution that is easy to
implement.
(4) EDIxchangeSupport'sm'
EDIxchangeSupport is a portfolio of professional consulting services
provided to customers who wish to augment their in-house electronic commerce
resources. EDIxchangeSupport includes consulting provided on-site and from other
locations. It is focused on developing and implementing electronic commerce,
communications between new and old computer systems, application integration,
distribuion logistics and translations between EDI and other types of data.
DISTRIBUTION AND MARKETING OF PRODUCTS AND SERVICES
Our company believes that the most likely users of our services are
companies that are committed to aggressively using electronic commerce to
improve their productivity. Since EDI is a fundamental part of business-to-
business electronic commerce, we have focused our marketing efforts on existing
users of EDI. In addition, we are able to determine likely prospects by studying
industry and financial analyses of EDI companies and the industry in general.
EDIxchangeBuy and EDIxchangeSell are services targeted specifically at
large companies and their suppliers. The target market for EDIxchangeOutsource
consists primarily of middle market suppliers, who are forced to manage the
complexity of EDI compliance with their various customers. EDIxchangeOutsource,
supported by our EDIxchangeNetwork, leverages the knowledge of the trading
requirements of major enterprises to benefit multiple suppliers. In addition,
the overall cost of EDI management is reduced by the shared connections to our
company's services, and by our highly specialized customer service.
Our company's sales strategy is to utilize a highly qualified and focused
sales force to target early adopters and EDI-capable enterprises, such as the
drug store industry and certain specialty retail market segments. In addition,
our company markets in traditional electronic commerce venues, such as
electronic commerce trade shows and exhibitions.
COMPETITION
The electronic commerce, EDI network services and computer software markets
are highly competitive. The principal competitors in the electronic commerce
software and services markets are Harbinger Corporation, Sterling Commerce,
Inc., General Electric Company's GE Information Services subsidiary, Netscape
Corporation, America Online, Inc., Open Market, Inc., InterWorld Corp.,
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PurchasePro, Inc., Ariba, Inc., Commerce One, Inc., BroadVision, Inc.,
ConnectInc.com, International Business Machines Corporation, Microsoft
Corporation, Electronic Data Systems Corporation and MCI WorldCom, Inc. Each of
those companies is engaged in, or has announced plans to engage in, providing
software products and services that facilitate electronic commerce over the
Internet.
Competition from Internet-based competitors may also be significant. The
market for Internet software and services is emerging and highly competitive. It
ranges from small companies with limited resources to large companies with
substantially greater financial, technical and marketing resources than our
company. Management of our company believes that existing competitors are likely
to expand the range of their electronic commerce services to include Internet
access, and that new competitors, which may include telephone companies and
media companies, are increasingly likely to offer services that utilize the
Internet to provide business-to-business data transmission services. Also, in
the future our company expects the major on-line service companies, such as
America Online, Inc., CompuServe and Prodigy Communications Corp., to enhance
their services to include certain aspects of electronic commerce.
CUSTOMERS
The following chart lists our key customers, the business in which such
customers engage, and the solutions we provide to them.
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EDIxchangeBuy'sm' or EDIxchangeSell'sm'
Company Business
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Rite Aid Corporation Retail pharmacy chain
GTE Service Corporation Communications
Southern New England Telephone Co. Communications
The Walt Disney Company Entertainment
Service Merchandise Company, Inc. Specialty retail
Linens N' Things Inc. Specialty retail
Great American Knitting Mills, Inc. Manufacturer of Gold Toe, Nautica brands
<CAPTION>
EDIxchangeOutsource'sm'
Company Business
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SDI Technologies Inc. Manufacturer of SoundDesign electronics
Church & Dwight Co. Inc. Manufacturer of Arm & Hammer products
The Royal Doulton Company Maker of fine china
The Swatch Company Distributor of Swatch, Longines watches
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EDIxchangeSupport'sm'
Company Business
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Nabisco Holdings Corp. Consumer goods
Toys R Us, Inc. Toy retailer
Neuman Distributors Consumer goods wholesaler
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The only customer that accounts for more than ten percent (10%) of our
company's business is Toys R Us, Inc., which accounted for approximately
twenty-nine percent (29%) of our business in fiscal year 1999, exclusively for
EDIxchangeSupport consulting services.
INTELLECTUAL PROPERTY
To protect our proprietary products, our company relies primarily on a
combination of copyright, patent, trade secret and trademark laws, as well as
confidentiality procedures and contractual provisions. On March 16, 1999, a
patent number was assigned to our company's NetCat software. In addition, our
company owns the United States trademark registrations of its DynamicWeb,
NetCat, EDIxchange and ECbridgeNet trademarks. Our company also has on file with
the U.S. Patent and Trademark Office pending applications for registration of
the DWEB and EXTENDING THE ENTERPRISE trademarks. In addition, our company owns
a copyright registration for our company's ordering system, and may have a right
to assert copyright protection for additional works, including software.
Despite our company's efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our company's products or to
obtain and use information that our company regards as proprietary. There can be
no assurance that our company's means of protecting its proprietary rights will
be adequate or that competitors will not independently develop similar or
superior technology. Our company believes that, due to the rapid pace of
innovation within the electronic commerce, EDI and related software industries,
factors such as the technological and creative skills of its personnel are more
important in establishing and maintaining a leadership position within the
electronic commerce industry than are the various legal protections of its
technology. Our company does not believe that any of its products infringe upon
the proprietary rights of third parties. There can be no assurance, however,
that third parties will not claim infringement by our company with respect to
current or future products. From time to time, our company has received notices
which allege, directly or indirectly, that our company's products or services
infringe the rights of others. Our company generally has been able to address
these allegations without material cost. Our company expects that software
product developers will increasingly be subject to infringement claims as the
number of products and competitors in electronic commerce grows and the
functionality of products in different industry segments overlaps. Any such
claims, irrespective of their merit, could be time-consuming, result in costly
litigation, cause product shipment delays, require our company to enter into
royalty or licensing agreements, or prevent our company from using certain
technologies. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to our company or at all, which could have a
material adverse effect.
Our company currently has in place confidentiality and non-competition
agreements with all fifty-two (52) of its employees. Our company has adopted a
policy of requiring that all future employees sign appropriate confidentiality
agreements and, where appropriate, non-competition agreements.
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Our company's proprietary Internet software is written in Practical
Extraction and Reporting Language (known as "PERL"), which is the computer
program language utilized for Internet applications. Because the Internet is not
controlled or supervised by any one person or group, the evolution and continued
utilization of PERL cannot be controlled or predicted. Changes in or the
elimination of PERL could cause our company to have to assume responsibility for
support and development of that software.
Our company currently licenses proprietary data encryption and
authentication software from RSA Data Security, Inc. The RSA Data Security, Inc.
software, which is licensed to our company from Community ConneXion, Inc., is
incorporated in certain other software related to the Web server utilized by our
company. The RSA Data Security, Inc. software is available on a non-exclusive
basis. No assurance can be given that the encryption software presently
available will continue to be available to our company on commercially
reasonable terms, or at all. Additionally, there is no assurance that, if a new
encryption technology develops, it will be available to our company on
commercially acceptable terms, if at all.
Our company also licenses: credit-card verification software from
Cybercash, Inc. on a non-exclusive basis; data transformation software from
Mercator Software Pty Ltd. on a non-exclusive basis; EDI translator software
from the Gentran product line of Sterling Commerce, Inc. on a non-exclusive
basis; and database software from Oracle Corporation on a non-exclusive basis.
REQUISITE GOVERNMENTAL APPROVAL; EFFECT OF GOVERNMENTAL REGULATIONS
Our company's network services are transmitted to customers over dedicated
and public telephone lines. These transmissions are governed by regulatory
policies establishing charges and terms for communications. Our company's
business and products could experience adverse impacts as a result of changes in
the legislation and regulations relating to on-line services, EDI, the Internet
access industry, telecommunication costs, competition in the telecommunications
industry and international competition. Management believes that our company is
in material compliance with all applicable regulations.
PRODUCT DEVELOPMENT
Our company spent approximately $534,000 in the year ended September 30,
1999 and $412,000 in the year ended September 30, 1998 for the research and
development of products. To reduce product development time and expense, if
appropriate, our company has incorporated into its products certain software
licensed to it by other software developers.
Our company continues to assess the needs of trading partners in various
trading communities and to develop software programs and network services to
facilitate electronic commerce transactions over the EDIxchange Network. Our
company's product development efforts currently are focused on providing a full
range of electronic commerce solutions to new and existing customers.
Specifically, our company is in various stages of developing other software
applications, bar code integration to facilitate the shipping and receiving of
goods, and catalog-based solutions.
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EMPLOYEES
As of September 30, 1999, our company had forty-nine (49) full-time and
three (3) part-time employees. Approximately nine (9) are technical personnel
engaged in maintaining or developing our company's products or performing
related services, approximately ten (10) are marketing and sales personnel,
approximately seventeen (17) are involved in providing consulting services to
customers, approximately nine (9) are engaged in customer support and
operations, and approximately seven (7) are involved in administration and
finance. None of our company's employees are represented by a union.
BUSINESS DEVELOPMENT
CURRENT CORPORATE STRUCTURE
Our company was initially incorporated in 1979 in the State of New Jersey
under the name Seahawk Oil International, Inc. In March 1996, we entered the
electronic commerce business through the acquisition of DynamicWeb Transaction
Systems, Inc. In connection with this acquisition, our company was renamed
"DynamicWeb Enterprises, Inc." In November 1996, our company acquired Megascore,
Inc., an accounting software company, and Software Associates, Inc., a company
involved in electronic commerce, while in May 1998, our company acquired Design
Crafting, Inc., a provider of electronic commerce consulting services. As of
September 1998, as a result of these acquisitions, our company had a business
structure that was composed of a parent company (DynamicWeb Enterprises, Inc.),
and four subsidiaries (DynamicWeb Transaction Systems, Inc., Software
Associates, Inc., Megascore, Inc. and Design Crafting, Inc.). On September 30,
1998, our company merged all of its subsidiaries into the parent company. No
changes in our corporate structure occurred between October 1, 1998 and
September 30, 1999.
RECENT DEVELOPMENTS
On September 21, 1999, our company entered into a strategic cooperative
marketing agreement with PurchasePro.com, Inc. Our company has products that
facilitate business-to-business e-commerce between buyers and sellers, and
PurchasePro.com, Inc. has products that focus on procurement over the Internet.
The goal of the alliance between our company and PurchasePro.com, Inc. is to
increase the efficiency of our customers' communications with suppliers and
their competitive bid procurement processes.
On December 1, 1999, our company entered into an Agreement and Plan of
Merger with eB2B Commerce, Inc., a company engaged in business-to-business
e-commerce. The merger agreement followed the execution by our company and eB2B
Commerce, Inc. of a letter of intent, dated November 10, 1999, as amended
November 19, 1999. Under the merger agreement, subject to a number of conditions
described below, eB2B Commerce, Inc. will merge into our company in a tax-free
merger and reorganization. At the time the merger is consummated:
Our company will issue approximately forty (40) million registered
shares of its capital
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stock in exchange for all of the outstanding shares of capital stock
of eB2B Commerce, Inc. The holders of preferred stock and other
convertible securities of eB2B Commerce, Inc. will receive preferred
stock and convertible securities, including warrants and options, of
our company having similar terms and conditions.
All of the directors and executive officers of our company will be
replaced by the directors and officers of eB2B Commerce, Inc., except
that our company will have the right to appoint one director of the
surviving company and our chief executive officer, Steven L.
Vanechanos, Jr., will become the chief technology officer of the
surviving company. As chief technology officer of the surviving
company, Steven L. Vanechanos, Jr. will receive an employment
agreement from the surviving company with: (1) a two-year term; (2) a
base salary of $170,000 and a minimum annual guaranteed bonus of
$40,000; (3) four weeks of vacation, and (4) severance pay equal to
two years of base compensation in the event that the surviving company
terminates his employment without cause.
eB2B Commerce, Inc. will have received a minimum of $15 million in
gross proceeds in a private placement of its securities. In fact, eB2B
Commerce, Inc. has recently closed on a private placement which raised
$33 million in gross proceeds.
The officers, directors and principal shareholders of our company who
own unregistered shares of our company's capital stock must enter into
"lock-up" agreements in which they agree not to sell, assign or
transfer their shares for the later of twelve (12) months after the
merger, or twelve (12) months after the closing of a qualified public
or private offering of more than $20 million in gross proceeds that
occurs within the initial twelve (12) month period after the merger.
Until the completion of the first audit of the surviving company,
Steven L. Vanechanos, Jr. will indemnify the surviving corporation for
damages resulting from any material breach by our company of the
merger agreement or any materially inaccurate representation and
warranty knowingly provided by our company in the merger agreement.
Our company will change its name to "eB2B Commerce, Inc.," or another
name that is acceptable to our company and eB2B Commerce, Inc.
The merger cannot be consummated without the approval of the holders of a
majority of the voting stock of our company. In addition, there are several
other conditions which must be fulfilled or waived prior to the closing of the
merger, including the reincorporation of our company in the State of Delaware.
If our company withdraws from or terminates the merger agreement without
the consent of eB2B Commerce, Inc., our company will be liable to eB2B Commerce,
Inc. for $500,000 in liquidated damages. For financial accounting purposes, eB2B
Commerce, Inc. will be considered the acquiring company.
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Our company has also entered into a Loan Agreement with eB2B Commerce,
Inc., dated November 12, 1999, which was amended by Amendment No. 1 to Loan
Agreement, dated November 19, 1999. Under the loan agreement, eB2B Commerce,
Inc. agreed to loan our company $2 million subject to certain conditions. As of
December 28, 1999, we have received a series of loans from eB2B Commerce, Inc.
having an aggregate outstanding principal amount of $1,250,000. We expect to
receive an aggregate of $750,000 in addition loans from eB2B Commerce, Inc.
prior to year end.
All loans under the loan agreement accrue simple interest at the rate of
eight percent (8%) per year. The loans mature on March 12, 2000. However, if on
March 12, 2000, eB2B Commerce, Inc. chooses not to consummate the merger for any
reason, the new maturity date of the loans will be November 12, 2000. If the
loans are not repaid when due, eB2B Commerce, Inc. may choose to convert the
aggregate value of the loan into shares of our company's common stock at a
conversion price of $0.25 per share. In addition, the loan agreement contains
standard termination provisions, as well as representations, warranties and
covenants from our company to eB2B Commerce, Inc.
As additional consideration for the loans, our company also issued to eB2B
Commerce, Inc. warrants to purchase an aggregate of 7,500,000 shares of our
company's common stock at an exercise price of $2.00 per share.
SIGNIFICANT CHANGES IN OUR COMPANY'S CAPITALIZATION
Certain of our company's existing shareholders, who in the aggregate held
approximately seventy-nine percent (79%) of the issued and outstanding common
stock of our company, contributed forty percent (40%) of their common stock to
the capital of our company in exchange for warrants to purchase an aggregate of
125,000 shares of our company's common stock. Although this occurred on January
9, 1998, it was effective as of December 24, 1997. The total number of shares
contributed was 654,597 shares, representing approximately thirty-two percent
(32%) of the issued and outstanding common stock at the time of contribution. In
particular, Kenneth R. Konikowski, Steven L. Vanechanos, Jr. and Steven
Vanechanos, Sr. contributed shares of our company's common stock to our company
in December 1997 (89,732 shares for Mr. Konikowski, 184,135 shares for Mr.
Vanechanos, Jr. and 182,191 shares for Mr. Vanechanos, Sr.). This transaction
resulted in a reduction at the time in the outstanding number of shares of our
company's common stock from 2,074,710 to 1,420,113 shares.
On January 9, 1998, our company amended its certificate of incorporation
to, among other things, effect a 0.2608491-for-one reverse stock split of our
company's common stock. Pursuant to the reverse stock split, each share of our
company's common stock outstanding on January 9, 1998 was converted into
0.2608491 of one share, except that no fractional shares were issued and
shareholders who would otherwise receive a fractional share as a result of the
reverse stock split were entitled to receive cash in lieu thereof. Unless
otherwise noted, all references to our company's common stock contained in this
report give effect to the reverse stock split.
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PRIVATE PLACEMENTS, OTHER FINANCINGS AND EQUITY COMPENSATION DURING THE PAST
TWO YEARS
In November 1996, our company acquired all the capital stock of Software
Associates, Inc. from Kenneth R. Konikowski. In connection with this
acquisition, Kenneth R. Konikowski was named executive vice president and a
director of our company. The stock purchase agreement, as amended, requires our
company to issue up to 178,420 additional shares of our company's common stock
to Mr. Konikowski in the event the average closing bid price of our company's
common stock does not equal $21.565 per share for the five (5) trading days
immediately prior to January 30, 2000. If such additional shares are issued, the
ownership interest of all other holders of our company's common stock will be
diluted in favor of Mr. Konikowski.
In April 1998, our company granted options to purchase 45,000 shares of our
company's common stock at $5.50 per share as compensation to Perry & Co. for
investment relations services. The options are exercisable immediately and
expire in April 2000. The estimated fair value of the options, which amounted to
$102,500, was charged to operations during fiscal year 1998.
Also, in April 1998, we granted options to purchase 45,000 shares of our
company's common stock at $5.50 per share as compensation to Joel Arberman for
investment relations services. The options are exercisable immediately and
expire in April 2000. The estimated fair value of the options, which amounted to
$102,500, was charged to operations during fiscal year 1998.
On August 7, 1998, our company closed on the first round of a private
placement to The Shaar Fund, Ltd. The Shaar Fund, Ltd. purchased 875 shares of
our Series A 6% convertible preferred stock, par value $0.001 per share,
together with 87,500 common stock purchase warrants with a term of three (3)
years and an exercise price of $6.00 per share, for an aggregate price of
$875,000. Our company received net proceeds of approximately $779,000 in
connection with this private placement and used these proceeds for general
operating purposes.
The Series A 6% convertible preferred stock has a conversion value of
$1,000 per share. That conversion value is credited towards the purchase of
shares of common stock at an agreed-upon purchase or conversion price. The
applicable conversion price is a discount to the "market price" of the common
stock at the time of conversion. For these purposes, the "market price" is the
average of the lowest three (3) days' closing bid prices of the common stock for
the twenty (20) trading days immediately preceding the conversion. Until
November 8, 1999, the conversion price can never exceed $2.75 per share. After
that date, the conversion price can never exceed $5.50 per share. The conversion
price also may be less than those ceilings, based upon the following: during the
0-179 days after purchase, the conversion price is eighty-five percent (85%) of
market price; during the 180-359 days after purchase, the conversion price is
eighty percent (80%) of market price; and 360 days or more after purchase, the
conversion price is seventy-eight percent (78%) of market price. The Shaar Fund,
Ltd. may elect when to convert the Series A 6% convertible preferred stock.
However, on August 7, 2000, The Shaar Fund, Ltd. must elect either to convert
all outstanding shares of Series A 6% convertible preferred stock at the
applicable conversion price or to have our company redeem all outstanding shares
of Series A 6% convertible preferred stock for $1,350 per share.
On December 3, 1998, our company closed on a second private placement of
Series A 6% convertible preferred stock with The Shaar Fund, Ltd. In this second
private placement, The Shaar Fund, Ltd. purchased 625 additional shares of our
Series A 6% convertible preferred stock and an
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additional 50,000 common stock purchase warrants with a term of three (3) years
and an exercise price of $6.00 for an aggregate price of $500,000. Our company
received net proceeds of approximately $415,000 and used these proceeds for
general operating purposes.
On February 16, 1999, our company completed a private placement to The
Shaar Fund, Ltd. of 500 shares of our Series B 6% convertible preferred stock,
par value $0.001 per share, and 45,000 common stock purchase warrants. The total
offering price was $500,000, and our company received net proceeds of
approximately $375,000. Our company used these proceeds for general operating
purposes. Trautman Kramer & Company Incorporated acted as placement agent in
connection with this private placement and received a fee of $50,000 and
additional compensation of 50,000 common stock purchase warrants exercisable at
$7.00 per share.
The terms of exercise and conversion of the Series B 6% convertible
preferred stock and related warrants are as follows: the stock has a conversion
value of $1,000 per share, and the common stock purchase warrants have a term of
five (5) years and an exercise price of $8.93 per share. The conversion value is
credited towards the purchase of shares of common stock at an agreed-upon
purchase or conversion price. The applicable purchase or conversion price is a
discount to the "market price" of the common stock at the time of conversion.
For these purposes, "market price" is the average of the lowest seven (7)
closing bid prices of the common stock for the twenty (20) trading days
immediately preceding the conversion. The applicable purchase or conversion
prices are the lesser of $9.75 per share, or the following: (1) for the
preferred stock converted up to one hundred eighty (180) days after purchase,
eighty-five percent (85%) of the market price of our company's common stock, or
(2) for preferred stock converted after one hundred eighty (180) days after
purchase, eighty percent (80%) of the market price of our company's common
stock. The Shaar Fund may elect when to convert the Series B 6% convertible
preferred stock, except that all the remaining shares will be converted
automatically on February 12, 2002. Our company used the net proceeds for
general corporate purposes.
On March 31, 1999, our company received $100,000 from a short-term loan
from a shareholder. The loan bore interest at eighteen percent (18%) and was
repaid in full, with interest, on April 30, 1999.
On April 26, 1999, our company completed a private placement to Cranshire
Capital, L.P. and Keeway Investments, Ltd. of 235,295 shares of our company's
common stock. The total offering price was $1,000,000 and our company received
net proceeds of approximately $940,000. Our company used these proceeds for
general operating purposes. PGN Capital Solutions, LLC acted as placement agent
in connection with this private placement and received a fee of $53,750 and
5,000 shares of our company's common stock.
On May 12, 1999, our company completed a second placement of the Series B
6% convertible preferred stock to The Shaar Fund, Ltd. This private placement
included 1,000 shares of our company's Series B 6% convertible preferred stock
and 90,000 common stock purchase warrants for an aggregate price of $1,000,000.
Our company received net proceeds of $750,000 and used the proceeds for general
operating purposes.
On July 1, 1999, our company entered into an oral agreement with Donner
Corp. International under which Donner Corp. International agreed to provide
general investment banking services to our
13
<PAGE>
company in exchange for warrants to purchase 6,000 shares of our company's
common stock, at an exercise price of $5.50 per share. The warrants expire five
(5) years after the date they were granted. Donner Corp. International provided
the services and our company has executed a Common Stock Purchase Warrant
Agreement, in accordance with the oral agreement.
On September 27, 1999, our company entered into an agreement with Sands
Brothers & Co., Ltd. of New York, an investment bank and member firm of the New
York Stock Exchange. The agreement obligates Sands Brothers & Co., Ltd. to
provide advice to our company on financing activities, strategic alternatives
and other corporate development opportunities in exchange for 8,750 shares of
common stock of our company and 25,000 options having an exercise price of $6.00
per share and a term of five (5) years.
On October 1, 1999, our company entered into an oral agreement with Malachi
Group, Inc. under which Malachi Group, Inc. agreed to provide financial
consulting and investment banking services to our company in exchange for
warrants to purchase 30,000 shares of common stock of our company, at an
exercise price of $6.00 per share. The warrants issued to Malachi Group, Inc.
expire five (5) years after the date they were granted. Malachi Group, Inc.
provided the services and our company has executed a Common Stock Purchase
Warrant Agreement, in accordance with the oral agreement.
On October 1, 1999, our company entered into an oral agreement with Denis
Clark under which Mr. Clark agreed to provide consulting services to our company
in exchange for warrants to purchase up to 7,500 shares of common stock of the
company , at an exercise price of $4.44 per share. The warrants issued to Mr.
Clark expire five (5) years after the date they were granted. Mr. Clark provided
the services and our company has executed a Common Stock Purchase Warrant
Agreement, in accordance with the oral agreement.
On November 23, 1999, our company issued warrants to purchase 27,000 shares
of its common stock, valued at $140,000 and paid $17,000 in satisfaction of all
claims arising from a consulting agreement between our company and Virtual `Ex,
Inc.
As of December 27, 1999, The Shaar Fund, Ltd. had converted all of the
1,500 shares of the Series A 6% convertible preferred stock into 594,394 shares
of our company's common stock, and all of the 1,500 shares of Series B 6%
convertible preferred stock into 574,914 shares of our company's common stock.
ITEM 2: DESCRIPTION OF PROPERTY
Our company currently does not own or have any investment in real property.
Our company's corporate offices are located at 271 Route 46 West, Building F,
Suite 209, Fairfield, New Jersey. It has entered into two leases for
approximately 5,400 square feet for its executive and administrative staff at an
aggregate monthly rental of $6,600 with terms expiring on October 31, 2001 and
December 31, 2002. Our company believes that additional space will be necessary
in the near future and that additional space is available at rental rates that
would not materially adversely affect our company.
14
<PAGE>
Our company sold its former offices (at 1033 Route 46 East, Clifton, New
Jersey) on November 23, 1998, for a sale price of approximately $205,000. Our
company received proceeds net of repayment of mortgage debt and expenses of sale
of approximately $12,000.
In addition, our company leases an apartment for James Conners, space for
storage, and space incidental to its agreement for an Internet server.
ITEM 3: LEGAL PROCEEDINGS
On December 17, 1999, Sands Brothers & Co., Ltd. commenced a civil action
against our company in the United States District Court for the Southern
District of New York. Our company had retained Sands Brothers & Co., Ltd. under
an agreement to provide financial advisory, corporate finance, and merger and
acquisition advice. Sands Brothers & Co., Ltd. alleges that it is entitled to
compensation under the agreement for introducing eB2B Commerce, Inc., the
company with which our company is planning to merge, to our company. Our company
disputes that Sands Brothers & Co., Ltd. is entitled to compensation. Sands
Brothers & Co., Ltd. is suing our company for breach of contract, unjust
enrichment and other related causes of action arising from the allegations that
it introduced eB2B Commerce, Inc. to our company. By its complaint, Sands
Brothers & Co., Ltd. seeks an accounting, a declaratory judgment adjudging the
respective rights under the agreement, and damages in an amount not less than
$3,500,000, plus interest, costs and attorneys fees. Our company intends to
vigorously defend this lawsuit. Our answer is presently due in early January
2000.
Our company is not a party to any other material legal proceeding.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
On September 9, 1999, our company held its 1999 Annual Meeting of
Shareholders. At such meeting the shareholders voted upon (1) the election of
two Class II directors and the election of one Class I director to fill a
vacancy for our company's Board of Directors, (2) an amendment to our company's
1997 Employee Stock Option Plan to increase the number of shares reserved for
issuance thereunder by 500,000 shares, (3) an amendment to our company's 1997
Stock Option Plan for Outside Directors to increase the number of options
granted at the time of appointment to 20,000 shares and to increase by 50,000
the number of shares reserved for issuance thereunder, and (4) approval of the
selection of Richard A. Eisner & Company, LLP as our company's independent
auditors for the fiscal year ended September 30, 1999. The shareholders approved
all of these ballot items.
The first item on the agenda was the election of two (2) members of Class
II of the board of directors to serve until their successors are elected at the
2002 annual meeting of shareholders and qualified, and election of one (1)
member of Class I of the board of directors to fill a vacancy and to serve until
his successor is elected at the 2001 annual meeting of shareholders and
qualified. The two persons nominated as Class II directors, Robert J. Gailus and
Kenneth R. Konikowski, were elected, each having received 2,363,426 votes, or
ninety and eight-tenths percent (90.8%) of all of the shares outstanding. Of the
shares represented in person or by proxy at the annual meeting, 72,651 shares
(two and eight-tenths percent (2.8%) of all the shares outstanding) withheld
their votes for the two (2)
15
<PAGE>
nominees for Class II director. The person nominated as Class I director, Steve
Vanechanos, Sr., was elected, having received 2,363,556 votes, or ninety and
eight-tenths percent (90.8%) of all the shares outstanding. Of the shares
represented in person or by proxy at the annual meeting, 72,521 shares (two and
eight-tenths percent (2.8%) of all the shares outstanding) withheld their votes
for the nominee for Class I director.
The second item on the agenda was the proposal to ratify and approve
Amendment No. 2 to our company's 1997 Employee Stock Option Plan to increase the
number of shares reserved for issuance thereunder by 500,000 shares, as set
forth in our company's proxy statement for such meeting. Amendment No. 2 to
Employee Stock Option Plan was ratified and approved with a total of 1,361,351
votes, or fifty-two and three-tenths percent (52.3%) of all the shares
outstanding. Of the shares represented in person or by proxy at the annual
meeting, 119,013 shares (four and six-tenths percent (4.6%) of all the shares
outstanding) voted against and 785 shares (three-hundredths percent (.03%) of
all the shares outstanding) abstained from voting for ratification and approval
of Amendment No. 2 to Employee Stock Option Plan.
The third item on the agenda was the proposal to ratify and approve an
Amendment to the 1997 Stock Option Plan for Outside Directors to increase the
number of options granted at the time of appointment to 20,000 shares and to
increase by 50,000 the number of shares reserved for issuance thereunder, as set
forth in our company's proxy statement for such meeting. Amendment to the 1997
Stock Option Plan for Outside Directors was ratified and approved with a total
of 1,352,615 votes, or fifty-one and nine-tenths percent (51.9%) of all the
shares outstanding. Of the shares represented in person or by proxy at the
annual meeting, 126,639 shares (four and nine-tenths percent (4.9%) of all the
shares outstanding) voted against and 1,895 shares (seven hundredths percent
(.07%) of all of the shares outstanding) abstained from voting for the
ratification and approval of the Amendment to the 1997 Stock Option Plan for
Outside Directors Plan.
The last item on the agenda was the proposal to ratify and approve the
appointment of Richard A. Eisner & Company, LLP as our company's independent
auditors for the fiscal year ended September 30, 1999. The appointment of
Richard A. Eisner & Company, LLP as our company's independent auditor for the
fiscal year ended September 30, 1999 was ratified and approved with a total of
2,260,942 votes, or eighty-six and eight-tenths percent (86.8%) of all the
shares outstanding. Of the shares represented in person or by proxy at the
annual meeting, 68,281 shares (two and six-tenths percent (2.6%) of all the
shares outstanding) voted against and 106,854 shares (four and one-tenth percent
(4.1%) of all the shares outstanding) abstained from voting for ratification and
approval of the appointment of Richard A. Eisner & Company, LLP as our company's
independent auditor for the fiscal year ended September 30, 1999.
16
<PAGE>
PART II
ITEM 5: MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our company's stock quote is generally not found in many daily newspaper
quotations. However, a portion of our company's common stock which is not
restricted is traded on the National Association of Securities Dealers Over the
Counter Bulletin Board Service under the symbol "DWEB."
The range of high and low bid quotations for our company's common stock for
the two most recently completed fiscal years and the current fiscal year to date
were obtained from the National Association of Securities Dealers and are
provided below. The volume of trading in our company's common stock has been
limited during the entire period presented, and the bid prices reported may not
be indicative of the value of our company's common stock or the existence of an
active trading market. These over-the-counter market quotations reflect
interdealer prices without retail markup, markdown or commissions and do not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
BID(1)
QUARTER ENDED HIGH LOW
<S> <C> > <C>
December 31, 1997 $5 1/8 $3 6/8
March 31, 1998 5 11/32 1 7/16
June 30, 1998 6 5
September 30, 1998 6 7/16 2 3/8
December 31, 1998 6 1 1/8
March 31, 1999 9 3/8 3 3/8
June 30, 1999 8 3/4 5 1/4
September 30, 1999 5 7/8 3 5/8
December 28, 1999 (2) 16 5/8 2 15/16
</TABLE>
(1) All prices in the table above are adjusted on a pro forma basis (rounded to
the nearest 1/8) to take into account the 0.2608491-for-one reverse stock
split whereby each share of our company's common stock became 0.2608491 of
a share as of January 9, 1998. See "ITEM 1: BUSINESS DEVELOPMENT --
Significant Changes in Our Company's Capitalization." The above prices do
not represent actual bid prices during the periods indicated.
(2) The high and low bid figures on this line are for the period from October
1, 1999 through December 28, 1999.
17
<PAGE>
HOLDERS
As of December 21, 1999, there were 3,666,985 shares of our company's
common stock outstanding, held by approximately three thousand two hundred
ninety-seven (3,297) holders of record. See "ITEM 1: BUSINESS DEVELOPMENT --
Significant Changes in Our Company's Capitalization -- Contribution of Stock."
DIVIDENDS
Our company did not declare or pay cash dividends on our company's common
stock during 1997, 1998 or 1999. Our company currently intends to retain any
earnings for use in the business and does not anticipate paying any cash
dividends in the foreseeable future.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with
the financial statements included in this report and in conjunction with the
description of our company's business included in this report. It is intended to
assist the reader in understanding and evaluating the financial position of our
company.
This discussion contains, in addition to historical information, forward
looking statements that involve risks and uncertainty. Our company's actual
results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in this report.
RESULTS OF OPERATIONS
For the year ended September 30,1999, our revenue has been classified into
three categories: transaction/subscription processing, consulting services and
network development. Previously, we classified revenues as transaction
processing, professional services and other. Accordingly, certain revenues from
prior periods have been reclassified to conform to current classifications.
Our company had net sales of $3,045,000 for the year ended September 30,
1999, compared to $1,187,000 for the year ended September 30, 1998, an increase
of approximately $1,858,000, or one hundred fifty-six percent (156%). The
increase in sales was attributable to the increase of our company's new
EDI/Internet products and services, particularly transaction processing services
offered through our company's EDI service bureau and sales of our company's
consulting services.
Transaction/subscription processing revenues include initial subscription
fees, and monthly transaction fees. These revenues for the year ended September
30, 1999 were $882,000, as compared to $419,000 for the year ended September
30,1998, an increase of $463,000 or one hundred eleven percent (111%).
18
<PAGE>
Consulting service revenues represent fees from contract computer
programming. These revenues for the year ended September 30, 1999 were
$1,494,000 as compared to $601,000 for year ended September 30, 1998, an
increase of $893,000 or one hundred forty-nine percent (149%). The increase
resulted from additional customers coupled with an increase in the average
amount billed per programmer.
Network development revenues primarily relate to the development of EDI
data transformation tools and to the custom development of EDIxchange,
EDIxchangeBuy and EDIxchangeSell from which the transaction/subscription
processing revenues are derived. Network development revenues for the year ended
September 30, 1999 were $669,000 as compared to $167,000 for the year ended
September 30, 1998, resulting in an increase of $502,000 or three hundred one
percent (301%). This increase is attributable to the increased customized
development of data transformation tools for customers using the EDIxchange
suite of services and also the new customer setup of the EDIxchange suite of
products.
Total cost of sales was $1,790,000 for the year ending September 30, 1999,
for a gross profit of approximately $1,255,000 and gross margin of forty-one
percent (41%). This compares to cost of sales of $719,000 for the year ended
September 30, 1998, resulting in gross profit of $468,000 and gross margin of
thirty-nine percent (39%). A portion of the increase in cost of sales is
attributable to salary increases that took effect in the second, third, and
fourth quarters of fiscal 1999. The aggregate salary increase consists of the
salary expense of the addition of ten (10) new employees plus normal course pay
raises for all other employees. The increase is also attributable to increased
costs for maintaining and upgrading equipment and communications for better
service to our customers. In addition, certain amounts previously recorded as
operating expenses in the year ending September 30, 1998 have been reclassified
into cost of sales.
Cost of transaction/subscription processing was $598,000 for the year ended
September 30, 1999, for a gross profit of approximately $284,000 and gross
margin of thirty-two percent (32%). This compares to cost of transaction/
subscription processing of $240,000 for the year ended September 30, 1998,
resulting in gross profit of $179,000 and gross margin of forty-three
percent (43%).
Cost of consulting service revenues provided by the Company was $893,000
for the year ended September 30, 1999, for a gross profit of $601,000 and gross
margin of forty percent (40%). This compares to cost of consulting services of
$427,000 for the year ended September 30, 1998, resulting in gross profit of
$174,000 and gross margin of twenty-nine percent (29%).
Cost of network development revenues was $299,000 for the year ended
September 30, 1999, or a gross profit of $370,000, and gross margin of
fifty-five percent (55%). This compares to cost of network development revenues
of $52,000 for the year ended September 30, 1998, resulting in gross profit of
$115,000 and gross margin of sixty-nine percent (69%).
Marketing and sales expenses were $1,638,000 for the year ended September
30, 1999 as compared to $734,000 for the year ended September 30, 1998. The
increase is attributable to salaries for new hires, the costs of attendance at
trade shows associated with our company's efforts to market its EDI/Internet
products and services, additional advertising expenses, and the creation of a
new division,
19
<PAGE>
customer satisfaction, to provide support for our company's products.
General and administrative expenses were $1,876,000 for the year ended
September 30, 1999 as compared to $1,925,000 for the year ended September 30,
1998. The decrease is attributable to lower expenditures in various areas.
Research and development expenses were $534,000 for the year ended
September 30, 1999 as compared to $412,000 for the year ended September 30,
1998. The increase is attributable to hiring of additional staff and to higher
compensation.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30 1999, the Company had cash of approximately $418,000 and
total current assets of approximately $1,085,000 and total current liabilities
of $840,000.
The Company had a net loss of approximately $2,766,000 for the year ended
September 30, 1999 and negative operating cash flow of approximately $2,187,000.
The Company's negative cash flow for the year was funded by proceeds from
private placements of our common stock.
On September 30, 1999, the capital resources available to the Company were
not adequate to finance the Company's activities for the quarter ending December
31, 1999. Pursuant to a loan agreement with eB2B Commerce, Inc., our company has
received $250,000 in November 1999, $1,000,000 in December 1999 and expects to
receive an additional $750,000 before year end. Management expects that the
Company's cash flow will be sufficient to last through June 30, 2000, by which
time our company anticipates having consummated the merger with eB2B Commerce,
Inc. If the merger is not consummated, or if the cash available before the
consummation of the merger is insufficient to meet our company's needs, our
company will need to conduct additional financing activities. There can be no
assurance that such financing activities will be successful.
On December 3, 1998, our company closed on a second private placement of
Series A 6% convertible preferred stock with The Shaar Fund, Ltd. In this second
private placement, The Shaar Fund, Ltd. purchased 625 additional shares of our
Series A 6% convertible preferred stock and an additional 50,000 common stock
purchase warrants with a term of three (3) years and an exercise price of $6.00
for an aggregate price of $500,000. Our company received net proceeds of
approximately $415,000.
On February 16, 1999, our company completed a private placement to The
Shaar Fund, Ltd. of 500 shares of our company's Series B 6% convertible
preferred stock and 45,000 common stock purchase warrants. The total offering
price was $500,000, and our company received net proceeds of approximately
$375,000. Trautman Kramer & Company Incorporated, acting as placement agent for
the private placement, received a fee of $50,000 and additional compensation of
50,000 common stock purchase warrants exercisable at $7.00 per share.
20
<PAGE>
On April 26, 1999, our company completed a private placement to Cranshire
Capital, L.P. and Keeway Investments, Ltd. of 235,295 shares of our company's
common stock. The total offering price was $1,000,000 and our company received
net proceeds of approximately $940,000.
On May 12, 1999, our company completed a second private placement of the
Series B 6% convertible preferred stock to The Shaar Fund, Ltd. This private
placement included 1,000 shares of our company's Series B 6% convertible
preferred stock and 90,000 common stock purchase warrants for an aggregate price
of $1,000,000. Our company received net proceeds of $750,000 and used the
proceeds for general operating expenses.
Some of the statements under "Management's Discussion and Analysis or Plan
of Operation," "Business" and elsewhere in this annual report constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our company's actual results,
levels of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed or
implied by such forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"could," "expects," "plans," "intends," "anticipates," "believes," "thinks,"
"estimates," "predicts," "potential," or "continue" or the negative of such
terms and other comparable terminology.
21
<PAGE>
ITEM 7: FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
DynamicWeb Enterprises, Inc.
Fairfield, New Jersey
We have audited the accompanying balance sheet of DynamicWeb Enterprises, Inc.
and subsidiaries as of September 30, 1999 and the related consolidated
statements of operations, changes in stockholders' equity (capital deficiency)
and cash flows for the years ended September 30, 1999 and 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of DynamicWeb Enterprises, Inc. and
subsidiaries as of September 30, 1999 and the results of its operations and its
cash flows for the years ended September 30, 1999 and 1998, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A, the Company
has incurred net losses and cash outflows from operations for each of the years
ended September 30, 1999 and 1998. These factors raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note A. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Richard A. Eisner & Company, LLP
New York, New York
November 19, 1999
With respect to Note M[3]
November 23, 1999
With respect to Note M[4]
December 17, 1999
22
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 418,000
Accounts receivable, net of allowance for doubtful accounts of $102,000 627,000
Prepaid expenses and other current assets 40,000
-----------
Total current assets 1,085,000
Property and equipment, net 459,000
Patents and trademarks, net of accumulated amortization of $19,000 23,000
Customer list, net of accumulated amortization of $57,000 43,000
Software license agreements, net of accumulated amortization of $113,000 73,000
Cost in excess of fair value of net assets acquired, net of accumulated amortization of $72,000 436,000
Other assets 14,000
-----------
$ 2,133,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 305,000
Accrued expenses 396,000
Other liabilities 12,000
Current portion of capital lease obligations 32,000
Deferred revenue 95,000
-----------
Total current liabilities 840,000
Capital lease obligations, net of current portion 24,000
-----------
Total liabilities 864,000
-----------
Commitments, contingency and other matters (Notes K, L and M)
Stockholders' equity:
Preferred stock - par value to be determined with each issue; 5,000,000
shares authorized: Series A - 6% cumulative, convertible, $.001 par value;
1,375 shares issued and outstanding,
aggregate liquidation value $1,787,500 1,110,000
Series B - 6% cumulative, convertible, $.001 par value; 1,500 shares issued and outstanding,
aggregate liquidation value $2,025,000 1,027,000
Common stock - $.0001 par value; 50,000,000 shares authorized; 2,637,076 shares
issued and outstanding
Additional paid-in capital 8,508,000
Unearned portion of compensatory stock options (78,000)
Accumulated deficit (9,298,000)
-----------
Total stockholders' equity 1,269,000
-----------
$ 2,133,000
===========
</TABLE>
See notes to financial statements
23
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1999 1998*
----------- ------------
<S> <C> <C>
Revenues:
Transaction subscription processing $ 882,000 $ 419,000
Consulting services 1,494,000 601,000
Network development 669,000 167,000
----------- -----------
3,045,000 1,187,000
----------- -----------
Cost of revenues:
Transaction subscription processing 598,000 240,000
Consulting services 893,000 427,000
Network development 299,000 52,000
----------- -----------
1,790,000 719,000
----------- -----------
1,255,000 468,000
----------- -----------
Expenses:
Marketing and sales 1,638,000 734,000
General and administrative 1,876,000 1,925,000
Research and development 534,000 412,000
----------- -----------
4,048,000 3,071,000
----------- -----------
Loss from operations before gain on sale of asset, interest expense and income (2,793,000) (2,603,000)
Gain on sale of asset 12,000
Interest expense (including amortization of debt discount and deferred
financing fees of $310,000 in 1998) (5,000) (374,000)
Interest income 20,000 23,000
----------- -----------
NET LOSS (2,766,000) (2,954,000)
Cumulative dividends on preferred stock, including imputed dividends (1,699,000) (77,000)
----------- -----------
NET LOSS ATTRIBUTED TO COMMON STOCKHOLDERS $(4,465,000) $(3,031,000)
=========== ===========
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $(1.81) $(1.56)
====== ======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED 2,460,287 1,944,132
=========== ===========
</TABLE>
* Reclassified to conform to current year's presentation
See notes to financial statements
24
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE COMMON STOCK -
PREFERRED STOCK PREFERRED STOCK PAR VALUE $.0001
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ------- ------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - OCTOBER 1, 1997 2,074,710
Contribution of common shares from officers/stockholders (654,597)
Proceeds from public offering (net of costs of $1,221,000) 733,334
Shares issued and issuable to acquire subsidiary 102,500
Compensation expense for stock options
Proceeds from private placement of Series A preferred
shares and warrants (net of costs of $96,000) 875 $ 335,000
Imputed dividend on Series A preferred stock 67,000
Dividend accrued on Series A preferred stock
Options issued for investor relations services
Correction of shares issuable to acquire subsidiary 12,936
Net loss
------- ---------- -------- -------- ---------- ------
BALANCE - SEPTEMBER 30, 1998 875 402,000 2,268,883 -
Proceeds from private placement of Series A preferred shares
(net of costs of $85,000 625 415,000
Proceeds from private placement of Series B preferred shares
(net of costs of $370,000 1,500 $550,000
Conversion of Series A preferred shares to common stock (125) (83,000) 95,420
Imputed dividends on Series A preferred stock 376,000
Imputed dividends on Series B preferred stock 477,000
Stock options granted
Compensation expense for stock options
Proceeds from exercise of common stock options 20,728
Options issued for investor related services
Shares issued for investor related services 16,750
Options issued for consulting related services
Options issued for settlement of a lawsuit
Proceeds from issuance of common stock in private placement 235,295
Dividends accrued on Series A and B preferred stock
Net loss
------- ---------- -------- ---------- ---------- ------
BALANCE - SEPTEMBER 30, 1999 1,375 $1,110,000 1,500 $1,027,000 2,637,076 -
======= ========== ======== ========== ========== ======
UNEARNED
ADDITIONAL PORTION OF
PAID-IN COMPENSATORY ACCUMULATED
CAPITAL STOCK OPTIONS DEFICIT TOTAL
------------ ---------------- ------------- ------------
BALANCE - OCTOBER 1, 1997 $ 3,131,000 $ (204,000) $ (3,578,000) $ (651,000)
Contribution of common shares from officers/stockholders
Proceeds from public offering (net of costs of $1,221,000) 3,179,000 3,179,000
Shares issued and issuable to acquire subsidiary 526,000 526,000
Compensation expense for stock options 115,000 115,000
Proceeds from private placement of Series A preferred
shares and warrants (net of costs of $96,000) 444,000 779,000
Imputed dividend on Series A preferred stock (67,000) 0
Dividend accrued on Series A preferred stock (10,000) (10,000)
Options issued for investor relations services 205,000 205,000
Correction of shares issuable to acquire subsidiary
Net loss (2,954,000) (2,954,000)
------------- ------------ ------------ -----------
BALANCE - SEPTEMBER 30, 1998 7,408,000 (89,000) (6,532,000) 1,189,000
Proceeds from private placement of Series A preferred shares
(net of costs of $85,000 415,000
Proceeds from private placement of Series B preferred shares
(net of costs of $370,000 580,000 1,130,000
Conversion of Series A preferred shares to common stock 83,000 0
Imputed dividends on Series A preferred stock (376,000) 0
Imputed dividends on Series B preferred stock (477,000) 0
Stock options granted 113,000 (113,000) 0
Compensation expense for stock options 124,000 124,000
Proceeds from exercise of common stock options 50,000 50,000
Options issued for investor related services 94,000 94,000
Shares issued for investor related services 85,000 85,000
Options issued for consulting related services 16,000 16,000
Options issued for settlement of a lawsuit 140,000 140,000
Proceeds from issuance of common stock in private placement 940,000 940,000
Dividends accrued on Series A and B preferred stock (148,000) (148,000)
Net loss (2,766,000) (2,766,000)
-------------- ------------ ------------ -----------
BALANCE - SEPTEMBER 30, 1999 $ 8,508,000 $ (78,000) $ (9,298,000) $ 1,269,000
============== ============ ============ ===========
25
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1999 1998
-------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,766,000) $ (2,954,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 221,000 115,000
Amortization of compensatory stock options 124,000 115,000
Gain on sale of asset (12,000)
Provision for bad debts 61,000
Amortization of debt discount and deferred financing fees 310,000
Options and shares issued for services 335,000 205,000
Changes in:
Accounts receivable (417,000) (124,000)
Prepaid expenses and other current assets (14,000) (1,000)
Accounts payable 66,000 57,000
Other assets (5,000)
Other liabilities 12,000
Accrued expenses 130,000 (71,000)
Deferred revenue 78,000 2,000
------------- -------------
Net cash used in operating activities (2,187,000) (2,346,000)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (191,000) (207,000)
Proceeds from sale of equipment 205,000
Acquisition of patents and trademarks (11,000)
Acquisition of software licenses (36,000) (150,000)
Acquisition of subsidiary, net of $3,000 of cash acquired (22,000)
------------- -------------
Net cash used in investing activities (22,000) (390,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt (11,000) (7,000)
Proceeds from issuance of common stock 990,000 3,307,000
Proceeds from loans - banks 73,000
Payment of loans - banks (187,000) (97,000)
Loans from officer/stockholder 100,000 115,000
Payment of officer/stockholder loans (100,000) (232,000)
Proceeds from issuance of preferred stock and warrants 1,545,000 779,000
Payment of subordinated notes payable (1,100,000)
------------- -------------
Net cash provided by financing activities 2,337,000 2,838,000
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 128,000 102,000
Cash and cash equivalents, beginning of year 290,000 188,000
------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 418,000 $ 290,000
============= =============
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
On May 1, 1998, the Company acquired Design Crafting, Inc. in exchange for
common stock (see Note D)
Acquisition of fixed assets through capital leases $ 67,000
Conversion of Series A preferred shares to common stock $ 83,000
Dividends accrued on Series A and B preferred shares $ 148,000
Accretion of Series A and B preferred shares $ 1,551,000 $ 67,000
Stock options granted $ 113,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest during the year $ 5,000 $ 89,000
</TABLE>
See notes to financial statements
26
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE A - BASIS OF PRESENTATION
On September 30, 1998, the Company merged with its subsidiaries, accordingly the
accompanying financial statements for the year ended September 30, 1998 include
the accounts of DynamicWeb Enterprises, Inc. and its wholly owned subsidiaries.
All significant intercompany balances and transactions were eliminated.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has incurred net
losses of $2,766,000 and $2,954,000 for the years ended September 30, 1999 and
1998, respectively, and also incurred substantial negative cash flows from
operations during such years. Accordingly, although the Company has a positive
stockholders' equity and working capital at September 30, 1999 and obtained
additional proceeds from sale of preferred and common shares as described in
Note H, the Company's resources may be depleted before the Company markets and
derives significant revenues from its products and services. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The Company's continuation as a going concern is dependent upon its ability to
obtain additional financing and ultimately to attain profitability through the
successful marketing of its products and services. The Company has entered into
a merger agreement as described in Note M. There is no assurance that the
Company will obtain additional financing or that the Company's products and
services will be commercially successful.
NOTE B - THE COMPANY
The Company is primarily in the business of providing services, including
developing, marketing and supporting software products that enable business
entities to engage in electronic commerce utilizing the Internet and traditional
Electronic Data Interchange ("EDI").
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] REVENUE RECOGNITION:
The Company's revenues, which are derived primarily from services,
include implementation fees, transaction fees and consulting fees.
Implementation fees, which relate to the installation of software
enabling use of EDI, are recognized upon completion of installation.
Transaction fees, which are earned on a per transaction basis, are
recognized when transactions are processed and consulting fees are
recognized as services are performed. The Company also sells computer
equipment and software and recognizes revenue upon shipment.
In October 1997, the AICPA issued Statement of Position ("SOP") No. 97-2,
"Software Revenue Recognition," which the Company adopted, effective
October 1, 1997. Such adoption had no effect on the Company's methods of
recognizing revenue from its service and sales activities.
Deferred revenue represents revenue billed in advance for consulting and
implementation services.
[2] CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
27
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[3] DEPRECIATION:
Property and equipment are recorded at cost. Depreciation is provided
using a straight-line method over the estimated useful lives of the
related assets. Amortization of leasehold improvements is provided by the
straight-line method over the shorter of the lease term or the estimated
useful life of the asset.
[4] INTANGIBLE ASSETS:
a) Cost in excess of fair value of net assets acquired:
The cost in excess of the fair value of identifiable net assets
acquired relates to the acquisition of Design Crafting, Inc.
(see Note D) and is being amortized over ten years.
b) Customer list:
Customer list relates to the acquisition of Software Associates, Inc.
(see Note D) and is being amortized over five years.
c) Patents and trademarks:
Costs to obtain patents and trademarks have been capitalized. The
Company has submitted numerous applications which are currently
pending. These costs are being amortized over five years.
d) Software license agreements:
Software license agreements acquired by the Company are being
amortized over the periods of the license agreements which range
from two to five years.
[5] IMPAIRMENT OF LONG-LIVED ASSETS:
Impairment losses are recognized for long-lived assets, including
certain intangibles, used in operations when indicators of impairment
are present. Management estimates that the undiscounted future cash
flows generated by those assets are sufficient to recover the assets'
carrying amount. An impairment loss would be measured by comparing the
fair value of the asset to its carrying amount.
[6] RESEARCH AND DEVELOPMENT:
Development costs incurred to establish the technological feasibility
of computer software are expensed as incurred. The Company capitalizes
costs incurred in producing such computer software, in accordance with
current accounting standards, after capitalization criteria have been
met.
[7] ADVERTISING AND PROMOTION COSTS:
Advertising and promotion costs are expensed as incurred. Such costs
amounted to approximately $156,000 and $260,000 for the years ended
September 30, 1999 and 1998, respectively.
28
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[8] INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS No. 109"). SFAS No. 109 measures deferred income taxes by
applying enacted statutory rates in effect at the balance sheet date to
net operating loss carryforwards and to the differences between the tax
basis of assets and liabilities and their reported amounts in the
financial statements.
[9] LOSS PER SHARE OF COMMON STOCK:
The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share" ("SFAS No. 128"), for the year ended September 30,
1998. SFAS No. 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants and convertible securities.
In addition, contingently issuable shares are included in basic
earnings per share when all necessary conditions have been satisfied.
Diluted earnings per share is very similar to fully diluted earnings
per share and gives effect to all dilutive potential common shares
outstanding during the reporting periods.
In 1999, net loss per share of common stock is based on the weighted
average number of shares outstanding. In 1998, net loss per share of
common stock also included, prior to their issuance, shares which were
issuable in connection with interim financings and after giving
retroactive effect to (i) the reverse stock split effected in January
1998 (see Note H[1]) and (ii) the contribution of 654,597 common shares
back to the Company in exchange for warrants in December 1997 (see Note
H). Contingent shares issuable in connection with the acquisition of
Software Associates, Inc. (see Note H) are excluded from the weighted
average shares outstanding. Net loss has been increased by dividends
accrued on cumulative convertible preferred stock, including imputed
dividends attributable to a beneficial conversion feature and the value
of warrants issued together with the preferred stock, to determine net
loss per share of common stock (see Note H).
[10] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
[11] FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company considers the carrying amount of its financial assets and
obligations, to approximate fair value due to the near-term due dates
and variable interest rates.
[12] STOCK-BASED COMPENSATION:
The Company has elected to account for its stock-based compensation
plans under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25"). As such, compensation
expense is recorded if the market price of the underlying stock on the
date of grant exceeds the exercise price of the options. In addition,
the Company provides pro forma disclosure of net loss and net loss per
share as if the fair value method defined in Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123") had been applied.
29
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE D - ACQUISITIONS
On November 30, 1996, the Company acquired all the outstanding stock of Software
Associates, Inc. in exchange for 224,330 shares of common stock. Software
Associates is a service bureau engaged in the business of helping companies
realize the benefits of expanding their data processing and electronic
communication infrastructure through the use of EDI. The Company further agreed
to issue up to 178,420 additional shares of its common stock in the event that
the average closing bid price of the Company's common stock does not equal
$21.565 per share for the five trading days immediately prior to January 30,
2000. The acquisition agreement also required the Company to issue options for
the purchase of 6,521 shares of its common stock to employees of Software
Associates, Inc., which were issued in August 1997. The acquisition, which was
accounted for as a purchase, was recorded at a total cost of $885,000, including
related expenses, of which $714,000 was allocated to purchased research and
development which was charged to operations upon acquisition.
On May 1, 1998, the Company purchased all the outstanding stock of Design
Crafting, Inc., a provider of electronic commerce consulting services, in
exchange for 102,500 shares of common stock. The acquisition, which was
accounted for as a purchase, was recorded at a total cost of $551,000, including
related expenses, of which $508,000 was allocated to cost in excess of fair
value of the identifiable net assets acquired.
The results of operations of the purchased businesses were included in the
consolidated statements of operations from their respective dates of
acquisition.
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of September 30, 1999:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIFE
------------------
<S> <C> <C>
Office equipment $ 104,000 5 years
Computer equipment (includes a capitalized lease of $67,000) 283,000 5 years
Automobiles 16,000 5 years
Leasehold improvements 38,000 Shorter of life of
lease or
useful life
of asset
Capitalized software 226,000 3 years
------------
667,000
Less accumulated depreciation and amortization (208,000)
------------
$ 459,000
============
</TABLE>
30
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE F - LINES OF CREDIT
The Company has two lines of credit aggregating $ 117,000 which are personally
guaranteed by an officer/stockholder of the Company and have interest rates of 2
1/4% and 4 1/4% above the bank's prime lending rate. There was no debt
outstanding as of September 30, 1999.
NOTE G - OBLIGATIONS
[1] The Company has capital leases consisting of the following:
The Company entered into capital leases with interest rates ranging
from 2.7% to 13.6%. Monthly installments due in fiscal 2000 and 2001
total $32,000 and $24,000, respectively.
[2] During fiscal year 1999, the Company paid off an existing mortgage that
was due July 2019 that had been payable at an interest rate of the
lower of prime plus 2%. The Company also paid off an auto loan that was
due in June 1999.
NOTE H - STOCKHOLDERS' EQUITY AND INTERIM FINANCING
[1] On March 7, 1997, the Board of Directors approved a reverse stock split
for each share of common stock to be converted into .2608491 of a share
and authorized 5,000,000 shares of preferred stock. On June 12, 1997,
the stockholders approved such transactions which were completed on
January 9, 1998. Cash of $332 was paid to the stockholders for
fractional shares. The accompanying financial statements and footnotes
give retroactive effect to the reverse stock split and accordingly, the
number of shares and per share amounts are stated on a post-split
basis.
[2] On April 30, 1997, pursuant to Regulation D, the Company completed a
private placement whereby it sold 24 units for an aggregate amount of
$600,000. The placement agent received a fee and nonaccountable expense
allowance aggregating $78,000 or 13% of the private placement offering.
Financing fees in this transaction were approximately $108,000. Each
unit consisted of a $25,000 subordinated promissory note bearing
interest at 8% and 3,115 shares of the Company's common stock. The
notes were repaid from the net proceeds of the Company's public
offering in February 1998. The 3,115 shares of common stock in each
unit, issued on November 6, 1997, aggregate to 74,760 shares of common
stock. The common stock was valued at a fair value of $450,000 and
$150,000 was allocated to the notes. Debt discount of $450,000 and
deferred financing fees of $108,000 were amortized over the period to
the expected completion date (October 31, 1997) of the Company's public
offering of securities. The Company completed its public offering in
February 1998. During the year ended September 30, 1998, financing
costs attributable to this offering of $93,000 were charged to
operations. The effective interest rate on the note was approximately
191%.
[3] On August 27, 1997, pursuant to Regulation D, the Company completed a
private placement whereby it sold 20 units for an aggregate amount of
$500,000. The placement agent received a fee and nonaccountable expense
allowance aggregating $65,000 or 13% of the private placement offering.
Financing fees in this transaction were approximately $72,500. Each
unit consisted of a $25,000 subordinated promissory note bearing
interest at 8% and 3,333 shares of the Company's common stock. In
connection with this transaction, two officers of the Company
contributed 66,660 shares of the Company's common stock valued at
$400,000 back to the Company which then, on November 6, 1997, reissued
such shares in the private placement. The notes were repaid from the
net proceeds of the Company's public offering in February 1998.
31
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE H - STOCKHOLDERS' EQUITY AND INTERIM FINANCING (CONTINUED)
[3] (CONTINUED)
The common stock was valued at a fair value of $400,000 and $100,000
was allocated to the notes. Debt discount of $400,000 and deferred
financing fees of $72,500 were amortized over the period to the
expected completion date (October 31, 1997) of the Company's public
offering of securities. The Company completed its public offering in
February 1998. During the year ended September 30, 1998, financing
costs attributable to this offering of $255,000 were charged to
operations. The effective interest rate on the notes was approximately
525%.
[4] On December 23, 1997, in connection with a contemplated public
offering, certain of the Company's existing stockholders contributed
654,597 shares of the Company's common stock back to the Company and
received 125,000 warrants. The warrants, which expire on December 23,
2007, entitle the holder to purchase the Company's common stock at
$6.00 per share. The contributed shares were canceled and retired. In
addition, contingent shares issuable in connection with the acquisition
of Software Associates, Inc. (see Note D) were reduced from 297,367
shares to 178,420 shares.
[5] On February 6, 1998, the Company completed a public offering of 733,334
shares of its common stock at $6.00 per share and received net proceeds
of approximately $3,179,000.
[6] On August 7, 1998, the Company completed a private placement for net
proceeds of approximately $779,000, which consisted of 875 shares of
Series A, 6% cumulative, convertible preferred stock, par value $0.001
per share, together with 87,500 Common Stock Purchase Warrants which
expire on August 7, 2001 and have an exercise price of $6.00 per share.
The preferred shares have a liquidation preference of the stated face
value of $875,000 plus 30% of the stated face value plus cumulative
dividends. Dividends, which are payable in cash or common shares at the
option of the Company, are due quarterly, commencing September 30,
1998, based upon the liquidation value. The holder is eligible to
convert 33-1/3% of the preferred shares to common stock after 60 days
from the closing date increasing to 100% of the preferred shares after
120 days from the closing date. Each preferred share is convertible at
the lesser of (i) $5.50 or (ii) 85% of the market price of the common
stock, as defined (Market Price) within 180 days, 80% of the Market
Price between 180 and 360 days and 78% of the Market Price after 360
days. The holder of preferred shares may not convert to the extent that
the holder will be the beneficial owner of 5% or more of the
outstanding common shares. The Company may redeem all the remaining
outstanding preferred shares at 125% of the stated value together with
all accrued and unpaid dividends thereon.
Proceeds from the private placement were allocated to the warrants
based on their estimated fair value and to the beneficial conversion
feature of the preferred shares based on that feature's intrinsic value
assuming the conversion terms most beneficial to the investor. Amounts
allocated aggregating $444,000 were credited to additional paid-in
capital and are being accounted for as imputed dividends to the
preferred stockholders over a one year period from date of issuance.
Imputed dividends accreted, which amounted to $376,000 and $67,000,
respectively, through September 30, 1999 and 1998, increases the
carrying value of the preferred shares.
32
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE H - STOCKHOLDERS' EQUITY AND INTERIM FINANCING (CONTINUED)
[6] (CONTINUED)
On December 3, 1998, the Company completed a private placement for net
proceeds of approximately $455,000 which consisted of 625 shares of
Series A, 6% cumulative, convertible preferred stock having a stated
value of $500,000 together with 50,000 common stock purchase warrants
which expire on December 1, 2001 and have an exercise price of $6.00 per
share. The shares are convertible into common stock. For purposes of
conversion, these preferred shares are deemed to have been outstanding as
of August 7, 1998 and the buyer may convert at the lesser of (i) $5.50 or
(ii) 80% of the Market Price between 180 and 360 days after August 7,
1998 and 78% of the Market Price after 360 days from such date. On
December 3, 1998, 125 preferred shares were converted to 95,420 shares of
common stock. Imputed dividends accreted, which amounted to $416,000
through September 30, 1999 increasing the carrying value of the preferred
stock.
[7] On February 12, 1999, pursuant to Regulation D, the Company completed a
private placement of 500 shares of Series B, 6% cumulative, convertible
preferred stock, par value $0.001 per share (the "preferred stock") and
45,000 common stock purchase warrants (the "Common Stock Purchase
Warrants") for an aggregate amount of $500,000. The placement agent
received a $50,000 fee on the private placement offering. The warrants
expire on February 12, 2004 and have an exercise price of $8.93 per
share. The Series B preferred stock has a conversion value of $1,000 per
share. The Series B preferred stock will be converted automatically on
February 12, 2002.
[8] On May 12, 1999, pursuant to Regulation D, the Company completed a
private placement of 1,000 shares of Series B, 6% cumulative, convertible
preferred stock, par value $0.001 per share and 90,000 common stock
purchase warrants for an aggregate amount of $1,000,000. The placement
agent received a $75,000 fee on the private placement offering. Other
expenses of the offering amounted to $175,000. The warrants expire on May
12, 2004 and have an exercise price of $8.93 per share. The Series B
preferred stock has a conversion value of $1,000 per share. The Series B
preferred stock will be converted automatically on May 12, 2002.
[9] On April 22, 1999, the Company completed a private placement of 235,295
shares of its common stock at $4.25 per share and received net proceeds
of approximately $940,000.
[10] The Company's outstanding warrants as of September 30, 1999 is as
follows:
<TABLE>
<CAPTION>
EXERCISE EXPIRATION
DESCRIPTION SHARES PRICE DATE
------------------------------------------------ ------------ -------- ------------------
<S> <C> <C> <C>
Warrants issued in connection with contribution
of stock 125,000 $6.00 December 23, 2007
Warrants issued with first issuance of preferred
stock Series A 87,500 $6.00 August 7, 2001
Warrants issued with second issuance of
preferred stock Series A 50,000 $6.00 December 1, 2001
Warrants issued with first issuance of preferred
stock Series B 45,000 $8.93 February 12, 2004
Warrants issued with second issuance of
preferred stock Series B 90,000 $8.93 May 12, 2004
------------
397,500
============
</TABLE>
33
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE I - STOCK OPTION PLANS
[1] DIRECTOR STOCK OPTION PLAN:
On April 28, 1997, the Board of Directors adopted a stock option plan for
outside directors (the "Director Plan") under which nonqualified stock
options may be granted to outside directors to purchase up to 78,254
shares of the Company's common stock. The Director Plan was approved by
the stockholders on June 12, 1997. Pursuant to the Director Plan, each
director is to be granted options to purchase 3,912 shares of the
Company's common stock at each annual meeting of stockholders at which
directors are elected. Options may be exercised for ten years and one
month after the date of grant and may not be exercised during an
eleven-month period following the date of grant unless there is a change
in control, as defined, or the compensation committee waives the
eleven-month continuous service requirement. During each of the years
ended September 30, 1999 and 1998, 11,736 options were granted to
directors to purchase the Company's common stock pursuant to the Director
Plan; such options, which were granted at prices equivalent to the market
value of the common stock at dates of grant, are exercisable immediately
and expire on September 9, 2009 and October 31, 2008.
[2] EMPLOYEE STOCK OPTION PLAN:
On March 7, 1997, the Board of Directors adopted the Company's 1997
employee stock option plan (the "Plan"), which was amended by the Board
of Directors on April 29, 1997, under which incentive stock options and
nonqualified stock options may be granted to purchase up to 334,764
shares of the Company's common stock. The Plan was approved by the
stockholders on June 12, 1997. Incentive stock options are to be granted
at a price not less than the market value of the common stock on the date
of grant, or 110% of such market value to an individual who owns more
than ten percent of the voting power of the outstanding stock.
Nonqualified stock options are to be granted at a price determined by the
Company's compensation committee. On August 8, 1997, the Company granted
105,575 nonqualified options to its employees to purchase the Company's
common stock. The options, which were granted at an exercise price below
market value, expire on August 7, 2007. On September 11, 1997, the
Company granted options to its President to purchase 104,338 shares of
the Company's common stock at $3.83 per share which expire in ten years
and vest over a three-year period. The market value of the stock at date
of grant was $4.55 per share. The Company recorded $494,000 of unearned
compensation relating to options granted to the President and other
employees, of which $124,000 and $115,000 was charged to operations for
the years ended September 30, 1999 and 1998, respectively, and $78,000 is
to be charged to operations over the remaining vesting periods of the
options.
[3] OTHER GRANTS, AWARDS AND EQUITY ISSUANCES:
In April 1998, the Company granted options to purchase 90,000 shares of
common stock at $5.50 per share as compensation to individuals other than
employees for investment relation services. The options are exercisable
immediately and expire in April 2000. The estimated fair value of the
options which amounted to $205,000 was charged to operations during
fiscal 1998.
During fiscal year 1999, the Company granted options to employees and
nonemployees to purchase 83,000 shares of common stock at exercise prices
ranging from $2.63 to $5.9375, of those, 50,000 options were in the money
when granted. The options exercise immediately and expire ranging from
November 2003 to November 2009. The estimated fair value of the options
which amounted to $250,000 was charged to operations during fiscal year
1999.
During fiscal year 1999, the Company issued 16,750 shares of common stock
as compensation for investment related services. The market value of the
shares issued amounted to $85,000 and was charged to operations during
fiscal 1999.
34
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE I - STOCK OPTION PLANS (CONTINUED)
[3] OTHER GRANTS, AWARDS AND EQUITY ISSUANCES: (CONTINUED)
A summary of the Company's stock option activity and related information
for the years ended September 30 is as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------- --------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Balance outstanding - at beginning
of year 320,776 $3.78 219,040 $3.06
Granted 247,173 4.03 101,736 5.35
Exercised (46,956) 3.22
Returned/cancelled (17,999) 1.94
----------- -----------
Balance outstanding - at end of year 502,994 4.02 320,776 3.78
=========== ===========
Exercisable at end of year 451,910 4.05 252,090 3.86
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF CONTRACTUAL NUMBER OF
EXERCISE OPTIONS REMAINING OPTIONS
PRICE OUTSTANDING LIFE (IN YEARS) EXERCISEABLE
------------- ------------ -------------- -------------
<S> <C> <C> <C>
$0.00 - $1.99 $ 88,840 1.2-7.9 $ 63,840
$2.00 - $2.99 25,000 4.1 25,000
$3.00 - $3.99 175,569 7.9-9.9 149,485
$4.00 - $4.99 74,284 8-10 74,284
$5.00 - $5.99 97,700 .5-9.6 97,700
$6.00 - $6.99 40,801 5-9.6 40,801
$7.00 - $7.99 800 9.6 800
------------ ------------
$ 502,994 $ 451,910
============ ============
</TABLE>
As indicated in Note C[12], the Company elected to account for its employee
stock based compensation under APB 25. Had compensation cost for stock option
grants been determined based on the fair value at the grant dates for awards
consistent with the method provided by SFAS No. 123, the Company's loss and loss
per share attributable to common stockholders would have been increased to the
pro forma amounts indicated below.
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
---------------------------------
1999 1998
---------------- --------------
<S> <C> <C> <C>
Net loss attributable to common stockholders As reported $ (4,465,000) $ (3,031,000)
Pro forma $ (5,123,000) $ (3,311,000)
Net loss attributable to common stockholders
per share - basic and diluted As reported $(1.81) $(1.56)
Pro forma $(2.08) $(1.70)
</TABLE>
35
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE I - STOCK OPTION PLANS (CONTINUED)
The resulting pro forma effect on net loss and net loss per share disclosed
above is not necessarily representative of the effects on reported operations
for future years due to, among other things: (1) the vesting period of the stock
options and the (2) fair value of additional stock options in future years. The
weighted average fair value of the options granted to employees during the years
ended September 30, 1999 and 1998 is estimated at $2.66 and $3.33, respectively,
using the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-----------------------
1999 1998
------------ -------
<S> <C> <C>
Risk free interest rates 4.39-5.99% 5.43%
Dividend yield 0% 0%
Volatility 70% 70%
Expected life of options (in years) 2-10 10
</TABLE>
NOTE J - INCOME TAXES
The Company has a federal net operating loss carryforward of approximately
$7,380,000 as of September 30, 1999 of which $1,966,000 expires through 2012,
$2,632,000 expires in 2018 and $2,782,000 expires in 2019.
The Tax Reform Act of 1986 contains provisions which limits the net operating
loss carryforwards available for use in any given year should certain events
occur, including significant changes in ownership interests. The utilization of
approximately $3,257,000 of the Company's net operating loss carryover is
limited to approximately $466,000 per year as a result of the Company's public
offering (see Note H[5]).
The tax effects of principal temporary differences and net operating loss
carryforwards are as follows as of September 30, 1999:
<TABLE>
<CAPTION>
<S> <C>
Asset:
Federal operating loss carryforwards $ 2,509,000
Compensation expense - stock options 114,000
Accounts receivable allowance 21,000
Accrual basis to cash basis adjustments 4,000
-------------
2,648,000
Valuation allowance (2,648,000)
Net deferred tax asset $ 0
=============
</TABLE>
A valuation allowance has been provided for the deferred tax asset as the
likelihood of realization of the future tax benefits cannot be determined. The
increase in the valuation allowance during fiscal 1999 and 1998 was
approximately $530,000 and $988,000, respectively.
36
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE J - INCOME TAXES (CONTINUED)
The differences between the statutory federal income tax rate and the effective
tax rate are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1999 1998
---------- -------
<S> <C> <C>
Tax benefit at statutory rate (34.0)% (34.0)%
Nondeductible items .3 .4
Increase in valuation allowance 33.7 33.6
-------- --------
Effective tax rate benefit $ 0% $ 0%
======== ========
NOTE K - COMMITMENTS AND OTHER MATTERS
[1] LEASES:
Future minimum lease payments under all leases as at September 30, 1999
are as follows:
YEAR ENDING CAPITAL OPERATING OFFICE
SEPTEMBER 30, LEASES LEASES LEASES
---------------- -------- --------- ---------
<S> <C> <C> <C>
2000 $ 32,000 $ 23,000 $ 100,000
2001 24,000 11,000 86,000
2002 4,000 52,000
2003 12,000
-------- -------- ---------
$ 56,000 $ 38,000 $ 250,000
======== ======== =========
</TABLE>
Rent expense for the years ended September 30, 1999 and 1998 was $97,000
and $94,000, respectively.
[2] EMPLOYMENT CONTRACTS:
During 1999, the Company entered into a three-year employment contract
with its President for an annual salary of $180,000 per year with an
annual escalation of $20,000. Upon expiration of the employment contract,
the term shall be automatically renewed for one year unless either party
gives written notice prior to ninety days before the expiration date.
In connection with the acquisition of Software Associates, Inc., the
Company entered into an employment contract with Software Associates,
Inc.'s sole stockholder/president. The agreement expires on November 30,
2001 and provides for annual salary of approximately $136,000 with a
discretionary bonus as determined by the Board of Directors.
In connection with the acquisition of Design Crafting, Inc., the Company
entered into a one-year employment contract with Design Crafting, Inc.'s
former stockholder for an annual salary of $140,000 plus commission. The
employment contract expired on April 30, 1999 and automatically renews
each year unless either party gives written notice prior to the annual
renewal date.
37
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE K - COMMITMENTS AND OTHER MATTERS (CONTINUED)
[3] CONCENTRATION OF CREDIT RISK:
The Company places its cash and cash equivalents at various financial
institutions. At times, such amounts might be in excess of the FDIC
insurance limit. As of September 30, 1999, the Company's bank balance
exceeded approximately $195,000.
The Company routinely evaluates the credit worthiness of its customers to
limit its concentration of credit risk with respect to its trade
receivables.
[4] SIGNIFICANT CUSTOMERS:
The Company had one customer that accounted for $888,000 or 29% of net
sales for the year ended September 30, 1999 and one customer that
accounted for $315,000 or 26% of net sales for the year ended September
30, 1998.
NOTE L - RELATED PARTY TRANSACTIONS
[1] The Company leases its office space through December 31, 2002 from a
partnership whose partners are the Executive Vice President/stockholder
of the Company and his wife. The lease provides for an annual increase in
rent of three percent and requires the Company to pay condominium
maintenance fees. Rent expense under the lease amounted to approximately
$44,000 in 1999 and $43,000 in 1998.
[2] In March 1999, the Company received a short-term loan from a stockholder
of $100,000 which the Company repaid from the net proceeds of the private
placement described in Note H. During the year ended September 30, 1998,
the Company received loans of $115,000 from its CEO/stockholder. The
entire loan balance was repaid from the net proceeds of the public
offering disclosed in Note H.
NOTE M - SUBSEQUENT EVENTS
[1] MERGER:
On November 10, 1999 the Company signed a binding letter agreement to
enter into a merger agreement with a privately held company also engaged
in the business-to-business e-commerce. The merger is subject to certain
closing conditions including stockholder approval of both companies. For
accounting purposes, the privately held company is expected to be treated
as the acquirer.
In conjunction with the merger agreement, the Company received loans from
the privately held company totaling $750,000. Additional loans are
anticipated. The loans accrue simple interest at the rate of 8% per year
and are due on March 12, 2000. If loans are not repaid when due, the
privately held company may choose to convert the value of the loans into
shares of the Company's common stock. As additional consideration, the
Company issued 2,500,000 warrants to purchase the Company's common stock
and upon execution of the definitive merger agreement, an additional
5,000,000 warrants to purchase the Company's common stock.
[2] CONVERSION OF PREFERRED SHARES:
Subsequent to September 30, 1999, 930 shares of Series A preferred stock
had been converted to 354,328 shares of common stock and all Series B
preferred shares had been converted to 574,914 shares of common stock.
38
<PAGE>
DYNAMICWEB ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE M - SUBSEQUENT EVENTS (CONTINUED)
[3] SETTLEMENT OF CONSULTING AGREEMENT:
In November 1999, the Company issued warrants to purchase 27,000 shares
of its common stock, valued at $140,000, and paid $17,000 in satisfaction
of all claims arising from a consulting agreement entered into by the
Company. The financial statements at September 30, 1999 provide for this
transaction.
[4] CONTINGENT MATTER:
On December 17, 1999, an investment banker sued the Company for
$3,500,000 which it claims it is due for introducing the parties in the
merger referred to in Note M[1]. The Company has made no provision in
connection with this claim.
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Our company does not have any changes in and disagreements with the
accountants on accounting and financial disclosure.
39
<PAGE>
PART III
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
NAMES, AGES AND POSITIONS OF DIRECTORS AND EXECUTIVE OFFICERS
The following table contains certain information with respect to the board
of directors and the executive officers of our company, as of December 21, 1999:
<TABLE>
<CAPTION>
Name Age Position
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Steven L. Vanechanos, Jr. (1) 45 Chairman of the Board and
Chief Executive Officer
James D. Conners 60 President and
Chief Operating Officer
Steve Vanechanos, Sr. (1) 69 Director, Vice President,
Treasurer and Secretary
Kenneth R. Konikowski 52 Director and
Executive Vice President
Denis Clark 55 Director
Frank T. DiPalma (2) 53 Director
Robert Droste (2)(3)(4)(5) 46 Director
Robert J. Gailus (3)(5) 50 Director
</TABLE>
(1) Steve Vanechanos, Sr. is the father of Steven L. Vanechanos, Jr.
(2) Member of the Compensation Committee during fiscal year 1998 and 1999.
The Compensation Committee meets on an as-needed basis between
meetings of the Board of Directors to discuss compensation-related
matters. This Committee was formed in 1997.
(3) Member of the Audit Committee of the Board of Directors during fiscal
year 2000.
40
<PAGE>
(4) Member of the Audit Committee of the Board of Directors during fiscal
year 1998 and 1999. The Audit Committee recommends an outside auditor
for the year and reviews the financial statements and progress of our
company. This Committee was formed in 1997.
(5) Member of the Compensation Committee during fiscal year 2000.
BIOGRAPHICAL AND OTHER INFORMATION
Steven L. Vanechanos, Jr. became Chief Executive Officer and Chairman of
the Board of Directors of our company on March 26, 1996. He was President of
DynamicWeb Transaction Systems, Inc., a wholly-owned subsidiary of our company,
from its incorporation in October 1995 until it merged with our company in
September 1998. He also was a co-founder in 1981 of Megascore, Inc., which was a
wholly-owned subsidiary of our company, and was its President from October 1985
until it merged with our company in September 1998. He has a Bachelor of Science
degree in Finance and Economics from Fairleigh Dickinson University, Rutherford,
New Jersey.
James D. Conners became President and Chief Operating Officer of our
company on August 26, 1997. Prior to joining our company, Mr. Conners served as
the Vice President of Strategic Planning of Sterling Commerce, Inc. in 1996 and
the Vice President of its Internet Business Unit in 1997. Prior to joining
Sterling Commerce, Inc., Mr. Conners spent fifteen years at General Electric
Company's GE Information Services in various sales and marketing positions, most
recently as the General Manager in charge of the Ameritech Alliance. Mr. Conners
graduated from the University of Detroit with a Bachelor of Science degree in
Mathematics and a minor in Physics.
Steve Vanechanos, Sr. became Vice President, Treasurer, Secretary and a
director of our company on March 26, 1996. He was a co-founder of Megascore,
Inc. in 1981 and DynamicWeb Transaction Systems, Inc. in 1995. He was Vice
President of Megascore , Inc. from April 1985 and of DynamicWeb Transaction
Systems, Inc. from October 1995 until the companies merged with our company in
September 1998. He attended Newark College of Engineering in Newark, New Jersey
for two (2) years. He continued his education with certifications from PSI
Programming Institute in New York City and with courses in principles of
accounting at ABA Institute, Hudson County Chapter.
Kenneth R. Konikowski became the Executive Vice President and a director of
our company on December 1, 1996. Prior to that date, Mr. Konikowski was
President of Software Associates, Inc., which he founded in 1985. Software
Associates, Inc. was a subsidiary of our company until it was merged into our
company in September 1998. In addition to building Software Associates, Inc.,
Mr. Konikowski has been actively involved in the electronic data interchange
industry for the past twelve (12) years and he continues to make numerous
presentations about the subject. Mr. Konikowski earned a degree in marketing
from Rutgers University in New Jersey.
Denis Clark became a director of our company in June 1997. Mr. Clark served
as Vice President of Sterling Commerce, Inc. from 1993 to 1996 and was employed
by International Business Machines Corporation as a Director of Consulting from
1991 to 1992 and as a Director of Software Marketing from 1989 to 1991. Mr.
Clark has been employed as regional vice president by Ajilon Services, Inc.
since June
41
<PAGE>
28, 1999. Previously, he was employed by Candle Corp. as Vice President of
Application Management, a position he held from 1996 to December 31, 1998.
Frank T. DiPalma became a director of our company on March 26, 1996. Since
January 1997, Mr. DiPalma has been employed as Vice President of Operations and
Engineering for Energy Corporation of America, Mountaineer Gas Division. Prior
to that time, and during the past five years, he held various management
positions for Public Service Electric and Gas, a public utility located in
Newark, New Jersey. In 1995 and 1996, he was the owner of Palmer Associates, a
management consulting company. Mr. DiPalma graduated from New Jersey Institute
of Technology with a Bachelor of Science in Mechanical Engineering; Fairleigh
Dickinson University with a Masters in Business Administration; and the
University of Michigan's Executive Development Program.
Robert Droste became a director of our company on March 26, 1996. Mr.
Droste served as a director of Megascore, Inc. from 1985 and of DynamicWeb
Transaction Systems, Inc. from February 1996 until the two companies merged into
our company in September 1998. Since June 1987, Mr. Droste has been the Director
of Administration and Manager of Internal Audit for Russ Berrie & Company, Inc.,
Oakland, New Jersey. He has a Bachelor of Science Degree in Accounting from
Fairleigh Dickinson University, Rutherford, New Jersey.
Robert J. Gailus became director of our company as of November 25, 1998.
Mr. Gailus has been employed as the Founding Partner of Software Technology
Venture Partners since January 1994. Mr. Gailus has been serving as a consultant
to our company since November 1998. He has a Bachelor of Arts degree in American
Studies from Columbia College and a Masters in Business Administration from the
Columbia Graduate School of Business.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
On December 1, 1996, our company entered into an employment contract with
Kenneth R. Konikowski, executive vice president and a director of our company.
The agreement expires on November 30, 2001. The agreement provides for an annual
salary of approximately $136,000 per year, a bonus established at the discretion
of our company's board of directors, and other benefits. Under the terms of the
agreement, if Mr. Konikowski's employment is terminated by our company other
than for "Cause," "Disability," or "Material Breach," or if he terminates his
employment for "Good Reason," as these terms are defined in Mr. Konikowski's
employment agreement, Mr. Konikowski is entitled to a lump sum amount equal to
the base salary that he would be entitled to if he worked from the time of
termination until November 30, 2001. This payment will be reduced by an interest
rate that is equivalent to the rates for the latest two-year Treasury bill.
On October 1, 1999, our company renewed the previous employment contract,
dated August 26, 1997, with James D. Conners, the president of our company. The
agreement has a three (3) year term, but it may be renewed automatically at the
end of the initial three (3) year term for one (1) additional term, unless
either party gives written notice prior to ninety (90) days prior to the date
that the agreement expires. The agreement provides for an annual salary of
$180,000 per year, with annual increases of $20,000 per year. If Mr. Conners'
employment is terminated other than for "Cause," as defined in his employment
agreement,
42
<PAGE>
Mr. Conners is entitled to receive his base salary, incentive compensation
and options for the balance of his employment period. In accordance with
Mr. Conners' renewed employment contract, effective as of October 1, 1999,
Mr. Conners was granted options to purchase 100,000 shares over a three (3) year
period, subject to adjustments that become effective upon a change of control.
Of these options, approximately 33,333 vest on each of September 30, 2000,
September 30, 2001 and September 30, 2002.
On March 1, 1998, our company entered into an employment contract with
Steven L. Vanechanos, Jr., the chief executive officer, chairman and director of
our company. The agreement expires on February 29, 2000, subject to extension
upon mutual agreement by our company and Mr. Vanechanos. Under the agreement,
Mr. Vanechanos shall receive a salary of $120,000 per year, a bonus established
at the discretion of our company's board of directors, and other benefits. Under
the agreement, if Mr. Vanechanos' employment is terminated by our company other
than for "Cause," "Disability," or "Material Breach," or if he terminates his
employment for "Good Reason," as these terms are defined in Mr. Vanechanos'
employment agreement, Mr. Vanechanos is entitled to a lump sum amount equal to
the base salary that he would be entitled to if he worked from the time of
termination until the end of his employment period. This payment will be reduced
by an interest rate that is equivalent to the rates for the latest two-year
Treasury bill.
On March 1, 1998, our company entered into an employment contract with
Steve Vanechanos, Sr., the vice president, treasurer and secretary of our
company. The agreement expires on February 29, 2000, but may be renewed
automatically for one (1) year periods, unless either our company or Mr.
Vanechanos provides at least ninety (90) days notice prior to the expiration
date. The agreement provides for a base salary of $66,000 in the first year and
$72,000 in the second year, and other benefits. Under the agreement, if Mr.
Vanechanos' employment is terminated by our company other than for "Cause,"
"Disability," or "Material Breach," or if he terminates his employment for "Good
Reason," as these terms are defined in Mr. Vanechanos' employment agreement, Mr.
Vanechanos is entitled to a lump sum amount equal to the base salary that he
would be entitled to if he worked from the time of termination until the end of
his employment period. This payment will be reduced by an interest rate that is
equivalent to the rates for the latest two-year Treasury bill.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires our company's
officers and directors and persons who own more than ten percent (10%) of a
registered class of our company's equity securities to file reports of ownership
and changes in ownership with the Securities and Exchange Commission. Officers,
directors and greater than ten percent (10%) shareholders are required by the
Securities and Exchange Commission regulation to furnish our company with copies
of all Section 16(a) forms they file. The rules of the Securities and Exchange
Commission regarding the filing of such statements require that "late filings"
of such statement be disclosed in this Annual Report.
Based solely on review of the copies of such forms furnished to our
company, our company believes that, during the fiscal year ended September 30,
1999, its officers, directors and greater than ten percent (10%) beneficial
owners complied with applicable Section 16(a) filing requirements.
43
<PAGE>
ITEM 10: EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table for the year ended September 30, 1999 shows salaries,
bonuses, options, and long-term compensation paid during the last fiscal year
for the chief executive officer and our company's other most highly compensated
executive officers whose total annual salary and bonus exceeded $100,000.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------------- ------------------------------------------
Securities
Options Underlying All Other
Name and Principal Position Fiscal Year Salary($) Awarded(#) Options/SARs(#) Compensation
- ------------------------------------- ----------- -------------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Steven L. Vanechanos, Jr. 1999 $114,000(1)(2) 0 0 $9,200(3)
Chairman and Chief Executive Officer
James D. Conners 1999 $160,000 154,338(4) 154,338 $20,000(5)
President and
Chief Operating Officer
Kenneth R. Konikowski 1999 $135,600(2) 0 0 $11,000(6)
Executive Vice President
</TABLE>
(1) Mr. Vanechanos is entitled to an annual salary of $108,000 through
February 1999, and $120,000 through February 2000.
(2) Eligible for increases based on annual performance reviews pursuant to
our company's policies and practices.
(3) Includes $3,000,000 in life insurance, use of an automobile, and
eligibility to participate in our company's 1997 Employee Stock Option Plan
and our company's other employee benefit plans.
(4) The employment agreement with Mr. Conners obligates our company to
grant to Mr. Conners options to purchase 104,338 shares of our company's
common stock during his employment period at an exercise price of $3.83 per
share. Under the 1997 Employee Stock Option Plan, on September 11, 1997,
Mr. Conners was granted 104,338 options. Of these options, 45,648 of the
shares vested on August 25, 1998; 32,606 vested on August 25, 1999; and the
remaining 26,084
44
<PAGE>
will vest on August 25, 2000. In addition, under the 1997 Employee Stock
Option Plan, on December 10, 1998, Mr. Conners was granted options to
purchase 50,000 shares of our company's common stock at an exercise price
of $1.27. Of these options, 25,000 vested on August 25, 1999 and the
remaining 25,000 will vest on August 25, 2000.
(5) Mr. Conners is entitled to receive a $1,300 per month housing allowance
and use of an automobile. He is also eligible to participate in the 1997
Employee Stock Option Plan and our company's other employee benefit plans.
(6) Includes $500,000 in life insurance, disability insurance, use of an
automobile, and eligibility to participate in our company's 1997 Employee
Stock Option Plan and our company's other employee benefit plans.
OPTION GRANTS TO EXECUTIVE OFFICERS DURING FISCAL YEAR 1999
The following table for the year ended September 30, 1999 contains
information concerning options granted during fiscal year 1999 to the chief
executive officer and our other highly compensated executive officers whose
total annual salary and bonus exceeded $100,000.
<TABLE>
<CAPTION>
Percent of Total
Number of Options Granted to
Shares Underlying Employees in Exercise Expiration Grant Date
Name Options Granted($) Fiscal Year(%) Price($/Sh) Date Present Value($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Steven L. Vanechanos, Jr. -- -- -- -- --
Kenneth R. Konikowski -- -- -- -- --
James D. Conners 50,000 27.9% $1.27 (1) $63,500.00
</TABLE>
(1) Mr. Conners was granted options to purchase 50,000 shares on December
10, 1998 under the 1997 Employee Stock Option Plan. Of these options,
25,000 vested on August 25, 1999 and the remaining 25,000 will vest on
August 25, 2000.
45
<PAGE>
AGGREGATED OPTION/STOCK APPRECIATION RIGHTS ("SAR") EXERCISES IN FISCAL
YEAR 1999 AND FISCAL YEAR-END OPTION/SAR VALUES
No options were exercised during fiscal year 1999 by the chief executive
officer or our other highly compensated officers whose total annual salary and
bonus exceeded $100,000.
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The table below contains information, as of December 21, 1999, concerning
the beneficial ownership of our company's common stock by the seven (7) members
of our company's board of directors immediately prior to and/or after December
21, 1999; by the executive officers who are named in the Summary Compensation
Table; by all directors and executive officers as a group; and by each person
who owns of record or is known by the Board of Directors to have been the owner
of more than five percent (5%) of our company's common stock as of December 21,
1999.
Unless otherwise indicated in a footnote, each of the following persons
held sole voting and investment power, as of December 21, 1999 over the shares
listed as beneficially owned.
<TABLE>
<CAPTION>
Beneficial Ownership of
Options Exercisable Percent of
Name and Address Beneficial Ownership within 60 Days of Common
of Beneficial Owner of Shares(1)(2) December 21, 1999(1) Stock(3)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Steven L. Vanechanos, Jr. 281,202 40,748 8.50%
92 Clarken Drive
West Orange, New Jersey 07052
Steve Vanechanos, Sr. (4) 274,287 40,626 8.30%
96 Union Avenue
Rutherford, New Jersey 07070
Kenneth R. Konikowski 134,598 0 3.50%
36 Pinebrook Road
Towaca, New Jersey 07082
</TABLE>
46
<PAGE>
<TABLE>
<S> <C> <C> <C>
James D. Conners 103,255 25,000 3.40%
5506 Carnoustie Court
Dublin, Ohio 43017
Robert J. Gailus 0 6,667 0%
50 Riverside Drive, Apt. 2-B
New York, New York 10024
Frank T. DiPalma (5) 10,697 4,913 0.40%
179 Claremont Road
Ridgewood, New Jersey 07450
Robert Droste 10,697 4,230 0.40%
24 Summit Road
Clifton, New Jersey 07012
Denis Clark 10,697 3,912 0.40%
16628 Calle Brittany
Pacific Palisades, California 90272
All directors and executive 825,433 126,096 25.10%
officers as a group (8 persons)
</TABLE>
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
rules of the Securities and Exchange Commission and may include securities
owned by or for the individual's spouse and minor children and any other
relative who has the same home, as well as securities to which the
individual has voting rights or investment power or had the right to
acquire beneficial ownership within sixty (60) days after December 21,
1999. Beneficial ownership may be disclaimed as to certain of the
securities.
(2) Information furnished by the directors and executive officers of our
company.
(3) Percentages based upon a total of (a) 3,666,985 shares outstanding as
of December 21, 1999, plus (b) an additional 126,096 shares issuable within
sixty (60) days of that date to directors under the 1997 Stock Option Plan
for Outside Directors and other agreements.
(4) All of such shares are held jointly by Mr. Vanechanos, Sr. and his
spouse.
(5) All of such shares are held jointly by Mr. DiPalma and his spouse.
47
<PAGE>
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with a financing for our company, Kenneth R. Konikowski,
Steven L. Vanechanos, Jr. and Steve Vanechanos, Sr. contributed shares of our
company's common stock to our company in December 1997 (89,732 shares for Mr.
Konikowski, 184,135 shares for Mr. Vanechanos, Jr. and 182,191 shares for Mr.
Vanechanos, Sr.).
Our company has a lease agreement with the Mask Group for the period from
December 1997 to December 31, 2002. Under this agreement, we lease a portion of
our office facility from the Mask Group, a partnership in which Kenneth R.
Konikowski, our company's executive vice president and a director, and his wife
are partners. The annual rent for the year ended September 30, 1999 under such
lease, as amended, is approximately $43,384, subject to fixed annual increases
of three percent (3%), plus the payment of condominium maintenance fees. The
lease expires on December 31, 2002. We believe that the rent charged by the Mask
Group approximates fair market rents in the area and is no less favorable to our
company than would have been obtained from an unaffiliated third party for
similar office space. In addition, our company is jointly obligated with the
Mask Group on approximately $246,000 of indebtedness (as of September 1, 1997)
to a third party lender to the Mask Group relating to a mortgage loan on those
premises. The Mask Group is making the payments on that loan, and has informed
our company that the loan is current.
On September 30, 1998, pursuant to an Agreement and Plan of Merger,
DynamicWeb Enterprises, Inc., DynamicWeb Transaction Systems, Inc., Software
Associates, Inc., Megascore, Inc. and Design Crafting, Inc. merged into a single
corporation existing under the laws of the State of New Jersey called DynamicWeb
Enterprises, Inc. DynamicWeb Enterprises, Inc., as the surviving corporation,
possesses all of the assets, rights, privileges, powers and franchises, as well
as all of the restrictions, disabilities, duties and liabilities of the former
subsidiaries. All of the issued and outstanding stock in the former subsidiaries
was cancelled as of the date of the merger.
Robert J. Gailus entered into a consulting agreement, dated November 25,
1998, with our company to provide financial advisory services to our company
through January 31, 1999. In exchange for such services to our company, Mr.
Gailus received options to purchase 25,000 shares of common stock of our company
at an exercise price of $2.63 per share exerciseable during a five (5) year
term. The agreement is subject to extension by mutual agreement between our
company and Mr. Gailus. Mr. Gailus also serves as a member of our company's
board of directors.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Exhibit Index below.
(b) No reports on Form 8-K were filed during the last quarter of our
company's 1999 fiscal year.
48
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
December 29, 1999 DYNAMICWEB ENTERPRISES, INC.
By: /s/ Steven L. Vanechanos, Jr.
--------------------------------
Steven L. Vanechanos, Jr.,
Chairman of the Board and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
By: /s/ Steven L. Vanechanos, Jr.
--------------------------------
Steven L. Vanechanos, Jr.,
Chief Executive Officer
December 29, 1999
By: /s/ Steve Vanechanos, Sr.
--------------------------------
Steve Vanechanos, Sr.,
Vice President, Treasurer, Secretary and Director
December 29, 1999
By: /s/ Nina Pescatore
--------------------------------
Nina Pescatore
Controller
December 29, 1999
By: /s/ Denis Clark
--------------------------------
Denis Clark
Director
December 29, 1999
By: /s/ Frank T. DiPalma
--------------------------------
Frank T. DiPalma
Director
December 29, 1999
49
<PAGE>
By: /s/ Robert Droste
--------------------------------
Robert Droste
Director
December 29, 1999
By: /s/ Robert J. Gailus
--------------------------------
Robert J. Gailus
Director
December 29, 1999
By: /s/ Kenneth R. Konikowski
--------------------------------
Kenneth R. Konikowski
Director
December 29, 1999
50
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER
ITEM 601 OF DESCRIPTION OF DOCUMENT AND INCORPORATION PAGE
REGULATION S-K BY REFERENCE WHERE APPLICABLE NO.
- -------------- ----------------------------------------- ----
<S> <C> <C>
2.1 Definitive Merger Agreement by and between eB2B
Commerce, Inc. and DynamicWeb Enterprises, Inc.,
dated December 1, 1999.
2.2 Letter Agreement by and between eB2B Commerce, Inc.
and DynamicWeb Enterprises, Inc., dated November 10,
1999.
2.3 Amendment No. 1 to the Letter Agreement by and
between eB2B Commerce, Inc. and DynamicWeb
Enterprises, Inc., dated November 19, 1999.
3.1 Amendment to the Certificate of Incorporation of
DynamicWeb Enterprises, Inc., dated May 12, 1999, as
filed with the State of New Jersey on May 18, 1999,
regarding the Series A 6% Cumulative Preferred Stock.
Incorporated here by reference to Exhibit Number
3.1.10 of the Form S-2 Registration Statement filed
with the Securities and Exchange Commission on May
20, 1999.
3.2 Amendment to the Certificate of Incorporation of
DynamicWeb Enterprises, Inc., dated May 12, 1999, as
filed with the State of New Jersey on May 13, 1999,
regarding the Series B 6% Cumulative Preferred Stock.
Incorporated here by reference to Exhibit Number
3.1.11 of the Form S-2 Registration Statement filed
by DynamicWeb Enterprises, Inc. with the Securities
and Exchange Commission on May 20, 1999.
4.1 Warrant Agreement, dated November 12, 1999, by and
between eB2B Commerce, Inc. and DynamicWeb
Enterprises, Inc.
</TABLE>
51
<PAGE>
<TABLE>
<S> <C> <C>
4.2 Warrant Certificate in the name of eB2B Commerce,
Inc. for 2,500,000 shares of common stock of
DynamicWeb Enterprises, Inc., dated November 10,
1999.
4.3 Warrant Certificate in the name of eB2B Commerce,
Inc. for 5,000,000 shares of common stock of
DynamicWeb Enterprises, Inc., dated November 19,
1999.
10.1 Letter Agreement between DynamicWeb Enterprises, Inc.
and Robert J. Gailus, dated November 27, 1998.
10.2 Common Stock Purchase Warrant Agreement between
DynamicWeb Enterprises, Inc. and Robert Gailus, dated
as of November 25, 1998.
10.3 Letter Agreement, December 3, 1998, between
DynamicWeb Enterprises, Inc. and The Shaar Fund, Ltd.
in connection with the second round of the Series A
private placement. Incorporated here by reference to
Exhibit Number 10.29 of the Form S-2 Registration
Statement filed by DynamicWeb Enterprises, Inc. with
the Securities and Exchange Commission on May 20,
1999.
10.4 Securities Purchase Agreement, dated February 12,
1999, between DynamicWeb Enterprises, Inc. and The
Shaar Fund, Ltd. Incorporated here by reference to
the Current Report on Form 8-K/A, dated February 23,
1999, filed by DynamicWeb Enterprises, Inc. with the
Securities and Exchange Commission.
10.5 Registration Rights Agreement, dated April 26, 1999,
between DynamicWeb Enterprises, Inc., Cranshire
Capital, L.P. and Keeway Investments, Ltd.
Incorporated here by reference to the Current Report
on Form 8-K, dated April 26, 1999, filed by
DynamicWeb Enterprises, Inc. with the Securities and
Exchange Commission.
</TABLE>
52
<PAGE>
<TABLE>
<S> <C> <C>
10.6 Letter Agreement, dated May 12, 1999, between
DynamicWeb Enterprises, Inc. and The Shaar Fund, Ltd.
in connection with the second round of the Series B
private placement to The Shaar Fund, Ltd.
Incorporated here by reference to Exhibit Number
10.34 of the Form S-2 Registration Statement filed by
DynamicWeb Enterprises, Inc. with the Securities and
Exchange Commission on May 20, 1999.
10.7 Letter Agreement, dated September 27, 1999, between
DynamicWeb Enterprises, Inc. and Sands Brothers &
Co., Ltd. for financial, strategic and other
consulting advice.
10.8 [Intentionally Omitted]
10.9 Common Stock Purchase Warrant Agreement between
DynamicWeb Enterprises, Inc. and Donner Corp.
International, dated as of September 30, 1999.
10.10 Employment Agreement between James Conners and
DynamicWeb Enterprises, Inc., dated August 26, 1997,
as renewed effective October 1, 1999.
10.11 Loan Agreement by and between eB2B Commerce, Inc. and
DynamicWeb Enterprises, Inc., dated November 12,
1999.
10.12 Common Stock Purchase Warrant Agreement between
DynamicWeb Enterprises, Inc. and Denis Clark, dated
as of November 19, 1999.
10.13 Common Stock Purchase Warrant Agreement between
DynamicWeb Enterprises, Inc. and Peter Baxter, dated
as of November 19, 1999.
</TABLE>
53
<PAGE>
<TABLE>
<S> <C> <C>
10.14 Amendment No. 1 to the Loan Agreement by and between
eB2B Commerce, Inc. DynamicWeb Enterprises, Inc.,
dated November 19, 1999.
10.15 Common Stock Purchase Warrant Agreement between
DynamicWeb Enterprises, Inc. and Virtual `Ex, dated
as of November 19, 1999.
10.16 Settlement Agreement between DynamicWeb Enterprises,
Inc. and Virtual `Ex, dated as of November 23, 1999.
11. Not applicable.
21. Not applicable.
27. Financial Data Schedule (EDGAR filing only).
</TABLE>
54
STATEMENT OF DIFFERENCES
------------------------
The service mark symbol shall be expressed as.......................... 'sm'
<PAGE>
AGREEMENT AND PLAN OF MERGER (the "Agreement") entered into on December
1, 1999 by and between eB2B COMMERCE, INC., a Delaware corporation with its
principal place of business at 29 West 38th Street, New York, New York 10018
("eCom"), and DYNAMICWEB ENTERPRISES, INC., a New Jersey corporation with its
principal place of business at 271 Route 46 West, Building F, Suite 209,
Fairfield, New Jersey 07004 (the "Company"). The Company and eCom are referred
to collectively herein as the "Parties" or individually as a "Party."
WHEREAS, the Boards of Directors of eCom and the Company deem it
advisable and in the best interests of their respective companies and their
respective stockholders to enter into a business combination by means of a
merger of eCom with and into the Company under the terms of this Agreement and
have approved and adopted this Agreement;
WHEREAS, upon the terms and subject to the conditions of this Agreement
and in accordance with applicable law, eCom will merge with and into the Company
and the Company will survive (the "Surviving Corporation"); and
WHEREAS, for United States federal income tax purposes, it is intended
that the Merger will qualify as a reorganization within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), and
that this Agreement shall be, and is hereby, adopted as a plan of reorganization
for purposes of Section 368 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1 Definitions.
1.1 "Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
1.2 "Agency Agreement" means that certain Agency Agreement dated
October 4, 1999 between eCom and Commonwealth Associates, L.P., as placement
agent, as amended.
1.3 "Agreement" has the meaning set forth in the preface above.
1.4 "Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms the basis for any specified
consequence.
1.5 "Certificates of Merger" has the meaning set forth in Section 2.3
below.
1.6 "Closing" has the meaning set forth in Section 2.2 below.
1.7 "Closing Date" has the meaning set forth in Section 2.2 below.
1.8 "Code" has the meaning set forth in the preface above.
1.9 "Company" has the meaning set forth in the preface above, and shall
include the Company's successors and assigns by operation of law (other than
eCom).
1.10 "Company Common Stock" means the common stock, par value $0.0001
per share, of the Company.
1.11 "Company Disclosure Schedule" means the disclosure schedule
delivered by the
1
<PAGE>
Company to eCom concurrently with the execution and delivery of this Agreement.
1.12 "Company Financial Statements" has the meaning set forth in
Section 4.9 below.
1.13 "Company Dissenting Shares" has the meaning set forth in Section
2.5.1 below.
1.14 "Company Most Recent Balance Sheet" means the balance sheet
contained within the Company Most Recent Financial Statements.
1.15 "Company Most Recent Financial Statements" has the meaning set
forth in Section 4.9 below.
1.16 "Company Most Recent Fiscal Quarter End" has the meaning set forth
in Section 4.9 below.
1.17 "Company Most Recent Fiscal Year End" has the meaning set forth in
Section 4.9 below.
1.18 "Company Options" means each option and warrant to purchase
Company Common Stock.
1.19 "Company-owned Share" means any eCom Share that the Company owns
beneficially.
1.20 "Company Preferred Stock" means all preferred stock of the
Company.
1.21 "Company Proxy Materials" means the proxy materials and all other
communications delivered to the Company Stockholders in connection with
obtaining the Requisite Company Stockholder Approval.
1.22 "Company SEC Reports" has the meaning set forth in Section 4.13
below.
1.23 "Company Securities" has the meaning set forth in Section 2.7.1
below.
1.24 "Company Share" means any share of the Company Common Stock or
Company Preferred Stock.
1.25 "Company Stockholder" means any Person who or which holds any
Company Share.
1.26 "Confidential Information" means all information regarding a Party
other than (i) information generally known by the public (other than as a result
of disclosure by the other Party) and (ii) information available to the other
Party on a nonconfidential basis from a Person not known by the other Party to
be bound by a confidentiality agreement or otherwise prohibited from disclosing
such information.
1.27 "Delaware General Corporation Law" means the General Corporation
Law of the State of Delaware, as amended.
1.28 "Dissenting Share" means any Company Share or eCom Share with
respect to which the holder thereof has objected to the transactions
contemplated hereby and has exercised such holder's appraisal rights under the
Delaware General Corporation Law or the NJBCA, as applicable.
1.29 "eCom" has the meaning set forth in the preface above.
1.30 "eCom Common Stock" means the common stock, par value $0.001 per
share, of eCom.
2
<PAGE>
1.31 "eCom Disclosure Schedule" means the disclosure schedule delivered
by eCom to the Company concurrently with the execution and delivery of this
Agreement.
1.32 "eCom Dissenting Shares" has the meaning set forth in Section
2.5.2 below.
1.33 "eCom Financial Statements" has the meaning set forth in Section
3.9 below.
1.34 "eCom Most Recent Balance Sheet" means the balance sheet contained
within the eCom Most Recent Financial Statements.
1.35 "eCom Most Recent Financial Statements" has the meaning set forth
in Section 3.9 below.
1.36 "eCom Most Recent Fiscal Month End" has the meaning set forth in
Section 3.9 below.
1.37 "eCom Options" means each option and warrant to purchase eCom
Common Stock.
1.38 "eCom Preferred Stock" means all preferred stock of eCom
(including the preferred stock issued in connection with the Qualified Private
Placement).
1.39 "eCom Share" means any share of eCom Common Stock or eCom
Preferred Stock.
1.40 "eCom Securities" has the meaning set forth in Section 2.7.1
below.
1.41 "eCom Stock Option Plan" means the 1998 Incentive Stock Option
Plan of eCom.
1.42 "eCom Stockholder" means any Person who or which holds any eCom
Share.
1.43 "Effective Time" has the meaning set forth in Section 2.4.1 below.
1.44 "Environmental, Health, and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, and all common law concerning public health and
safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation, each as amended.
1.45 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
1.46 "Exchange Agent" means American Stock Transfer and Trust Company.
1.47 "Exchange Fund" has the meaning set forth in Section 2.7.1 below.
1.48 "Exchange Ratio" has the meaning set forth in Section 2.4.5 below.
1.49 "Existing Common Stock" means the Company Common Stock authorized
or outstanding as of the date hereof or immediately prior to the Closing.
1.50 "Existing Company Preferred Holders" has the meaning set forth in
Section 5.2.3 below.
3
<PAGE>
1.51 "Existing Preferred Stock" means the Company Preferred Stock
authorized or outstanding as of the date hereof or immediately prior to the
Closing.
1.52 "GAAP" means United States generally accepted accounting
principles as in effect from time to time.
1.53 "Intellectual Property" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, Internet domain names, trade dress, logos, trade
names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including, without limitation,
ideas, research and development, know-how, formulas, compositions, manufacturing
and production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals), (f) all computer software
(including data and related documentation), (g) all other proprietary rights,
and (h) all copies and tangible embodiments thereof (in whatever form or
medium).
1.54 "IRS" means the Internal Revenue Service.
1.55 "Knowledge" means actual knowledge, including, with respect to the
Company, the actual knowledge of the Chief Executive Officer and President of
the Company and, with respect to eCom, the Chief Executive Officer and Chief
Financial Officer of eCom.
1.56 "Letter Agreement" means that certain Letter Agreement, dated
November 10, 1999, among the Parties, as amended as of November 19, 1999,
pursuant to which the Parties are entering into this Agreement.
1.57 "Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
1.58 "License" means any written license, sublicense, agreement or
permission.
1.59 "Loan Agreement" means that certain Loan Agreement, dated November
12, 1999, among the Parties, as amended as of November 19, 1999.
1.60 "Lock-Up Agreement" has the meaning set forth in Section 7.2
below.
1.61 "Material Adverse Effect" means, with respect to any Party, any
condition, circumstance or development having any adverse effect on the
business, financial conidition or results of operations of such Party that is
material to the Party or to the ability of the Party to consummate the
transactions contemplated by this Agreement.
1.62 "Merger" has the meaning set forth in Section 2.1 below.
1.63 "Newco" has the meaning set forth in Section 5.2.1 below.
1.64 "NJBCA" means the Business Corporation Act of the State of New
Jersey, as amended.
4
<PAGE>
1.65 "Ordinary Course of Business" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
1.66 "Party" or "Parties" has the meaning set forth in the preface
above.
1.67 "Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, a limited
liability company, an unincorporated organization, a governmental entity (or any
department, agency, or political subdivision thereof) or other entity or
organization.
1.68 "Private Placement Memorandum" means the private placement
memorandum, dated November 1, 1999, and other offering documents, in each such
case as superseded, updated or corrected, distributed to any potential investor
in connection with the Qualified Private Placement.
1.69 "Qualified Offering" means a private or public offering of the
securities of the Surviving Corporation conducted subsequent to the Closing
which results in gross proceeds to the Surviving Corporation of at least $20
million.
1.70 "Qualified Private Placement" shall mean a private placement of
securities of eCom as described in the Private Placement Memorandum in which the
gross proceeds to eCom are not less than $15 million and not more than $33.33
million.
1.71 "Requisite Company Stockholder Approval" means the affirmative
vote or written consent of the holders of the Company Shares in favor of this
Agreement and the Merger in accordance with applicable law and the certificate
of incorporation and bylaws of the Company.
1.72 "Requisite eCom Stockholder Approval" means the affirmative vote
or written consent of the holders of the eCom Shares in favor of this Agreement
and the Merger in accordance with applicable law and the certificate of
incorporation and bylaws of eCom.
1.73 "SEC" means the Securities and Exchange Commission.
1.74 "Securities Act" means the Securities Act of 1933, as amended.
1.75 "Securities Exchange Act" means the Securities Exchange Act of
1934, as amended.
1.76 "Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
1.77 "Subsidiary" means any corporation with respect to which a
specified Person owns a majority of the common stock or has the power to vote or
direct the voting of sufficient securities to elect a majority of the directors.
1.78 "Surviving Corporation" has the meaning set forth in the preface
above.
1.79 "Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code 'SS'59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
5
<PAGE>
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
1.80 "Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to any Tax, including any
schedule or attachment thereto, and including any amendment thereof.
1.81 "Y2K Problem" shall mean generating incorrect date data or
incorrectly processing date-related data or functionality when processing,
providing or receiving (i) date-related data from, into and between the
twentieth and twenty-first centuries or (ii) date-related data in connection
with any valid date in the twentieth and twenty-first centuries.
2 Basic Transaction.
2.1 The Merger. On and subject to the terms and conditions of this
Agreement and in accordance with the Delaware General Corporation Law, eCom will
merge with and into the Company (the "Merger") at the Effective Time. The
Company shall be the corporation surviving the Merger.
2.2 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of eCom's legal
counsel, Moskowitz Altman & Hughes LLP, in New York City or such other place as
the Parties may mutually determine, commencing at 9:00 a.m. local time on the
third (3rd) day after the receipt of the later of the Requisite Company
Stockholder Approval or the Requisite eCom Stockholder Approval or such other
date as the Parties may mutually determine which date shall be within five (5)
days after the receipt of the later of the Requisite Company Stockholder
Approval or the Requisite eCom Stockholder Approval (the "Closing Date").
2.3 Actions at the Closing. At the Closing, (i) the Company will
deliver to eCom the various certificates, instruments, and documents referred to
in Section 6.1 below, (ii) eCom will deliver to the Company the various
certificates, instruments, and documents referred to in Section 6.2 below, (iii)
the Company and eCom will file with the Secretary of State of the State of
Delaware and the Secretary of State of the State of New Jersey, certificates of
merger as required to consummate the Merger in accordance with applicable law,
and in form and substance reasonably satisfactory to the Parties (the
"Certificates of Merger"), and (iv) the Company will deliver or cause to be
delivered to or by the Exchange Agent the certificates evidencing the shares of
capital stock of the Company to be issued in the Merger in the manner specified
in Section 2.7 below.
2.4 Effect of Merger.
2.4.1 General. The Merger shall become effective at the date
and time (the "Effective Time") the Company and eCom file the Certificates of
Merger with the Secretaries of State of the appropriate jurisdictions. At the
Effective Time of the Merger the separate existence of eCom shall cease and eCom
shall be merged with and into the Company. The Surviving Corporation may, at any
time after the Effective Time, take any action (including executing and
delivering any document) in the name and on behalf of either the Company or eCom
in order to carry out and effectuate the transactions contemplated by this
Agreement.
2.4.2 Certificate of Incorporation. The Certificate of
Incorporation of the Company in effect at and as of the Effective Time will
remain the Certificate of Incorporation of the Surviving Corporation until such
time as it shall thereafter be duly altered, amended or repealed. Without
limiting the foregoing, the Company shall, as of the Effective Time, change
6
<PAGE>
its corporate name to "eB2B Commerce, Inc.", "eB2B.com, Inc." or such other name
as may be acceptable to eCom and reasonably acceptable to the Company.
2.4.3 Bylaws. The Bylaws of the Company in effect at and as of
the Effective Time will remain the Bylaws of the Surviving Corporation until
such time as they shall thereafter be duly altered, amended or repealed.
2.4.4 Directors and Officers. The directors and officers of
eCom in office at and as of the Effective Time will become the directors and
officers of the Surviving Corporation, retaining their respective positions and
terms of office, except that (i) the Chief Technology Officer of eCom shall be
offered a different position and shall no longer serve as Chief Technology
Officer as of the Effective Time and (ii) as of the Effective Time, Steven L.
Vanechanos, Jr., shall become Chief Technology Officer of the Surviving
Corporation (on the terms set forth in the Letter Agreement and such other terms
as may be reasonably acceptable to Steven L. Vanechanos, Jr. and the Parties),
and shall become an additional member of the Board of Directors of the Surviving
Corporation in accordance with the terms of Section 5.14 hereof.
2.4.5 Common Stock Conversion. At the Effective Time, each
outstanding share of eCom Common Stock outstanding immediately prior to the
Effective Time shall be converted into the right to receive a number of shares
of Company Common Stock equal to one share of eCom Common Stock multiplied by
the Exchange Ratio, as set forth herein. For purposes of this Agreement, the
"Exchange Ratio" means the ratio determined by calculating a fraction the
numerator of which shall be equal to the sum of (i) 25,000,000, plus (ii) 5
multiplied by (A) the number of shares of Existing Common Stock (and Existing
Preferred Stock, and warrants, options and other securities convertible into
Existing Common Stock, all on an as-converted, fully diluted basis) outstanding
as of the Effective Time, minus (B) 5,000,000, and the denominator of which
shall be the number of shares of eCom Common Stock (and eCom Preferred Stock and
eCom Options and other securities convertible into eCom Common Stock, all on an
as-converted, fully diluted basis) outstanding as of the Effective Time
(including for all purposes of determining the Exchange Ratio such number of
shares of eCom Common Stock [and eCom Preferred Stock, the eCom Options and the
eCom Options issuable to the placement agent in connection with the Qualified
Private Placement, all on an as-converted, fully diluted basis] issued by eCom
in connection with eCom's receipt of the initial $15 million from the Qualified
Private Placement). To the extent eCom raises gross proceeds in the Qualified
Private Placement in excess of $15 million, each such additional share of eCom
Common Stock (on as-converted, fully diluted basis) will be converted into the
right to receive a number of shares of Company Common Stock equal to one share
of eCom Common Stock multiplied by the Exchange Ratio.
2.4.6 Preferred Stock and Other Securities Conversion. At the
Effective Time, each share of eCom Preferred Stock, and each eCom Option and
other security convertible into eCom Common Stock, outstanding immediately prior
to the Effective Time, shall be converted into the right to receive,
respectively, shares of Company Preferred Stock, Company Options or other
securities convertible into Company Common Stock, as the case may be. The number
of shares of Company Common Stock issuable upon exercise or conversion of each
share of such Company Preferred Stock, and each Company Option or other security
convertible into Company Common Stock shall be calculated by multiplying (i) the
number of shares of eCom Common Stock into which each share of such eCom
Preferred Stock, each eCom Option or
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other security convertible into eCom Common Stock is exercisable or convertible
by (ii) the Exchange Ratio. The exercise or conversion price of each share of
such Company Preferred Stock, each Company Option or other security convertible
into Company Common Stock shall be calculated by dividing (i) the exercise or
conversion price of each share of such eCom Preferred Stock, each eCom Option or
other security convertible into eCom Common Stock by (ii) the Exchange Ratio. It
is the intention of the Parties that the Company Options qualify, to the maximum
extent possible following the Effective Time, as incentive stock options (as
defined in Section 422 of the Code) to the extent that the eCom Options
exchanged for such Company Options so qualified prior to the Effective Time. At
the Effective Time, all other terms of the Company Preferred Stock will be
substantially the same as the eCom Preferred Stock.
2.4.7 No Conversion of Existing Preferred Stock to Company
Preferred Stock. Pursuant to the terms of this Agreement, no shares of Existing
Preferred Stock shall be converted to Company Preferred Stock; provided that,
prior to the Closing, any holder of Existing Preferred Stock may convert such
holder's shares of Existing Preferred Stock to Existing Common Stock.
2.4.8 Certificate Holders' Rights After the Effective Time.
If, between the date of this Agreement and the Effective Time, any outstanding
shares of Company Common Stock (or securities convertible into Company Common
Stock) shall have been changed into a different number of shares or a different
class, by reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the number of shares
of Company Common Stock (or securities convertible into Company Common Stock)
into which eCom Common Stock (and other securities convertible into eCom Common
Stock) shall be correspondingly adjusted to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination or exchange
of shares. All such eCom Common Stock, eCom Preferred Stock, eCom Options and
other securities convertible into eCom Common Stock shall no longer be
outstanding and shall automatically be canceled and retired, and shall cease to
exist, and each certificate previously evidencing any such shares or other
securities shall thereafter represent the right to receive, upon the surrender
of such certificate, in accordance with the provisions of Section 2.6 of this
Agreement, certificates evidencing such number of whole shares of Company Common
Stock (or Company Preferred Stock, Company Options or other securities
convertible into Company Common Stock) into which such eCom Common Stock, eCom
Preferred Stock, eCom Options or other securities convertible into eCom Common
Stock were converted in accordance with this Section 2.4. The holders of such
certificates previously evidencing eCom Common Stock, eCom Preferred Stock, eCom
Options and other securities convertible into eCom Common Stock shall cease to
have any rights with respect to such securities except as otherwise provided
herein or by law. Any shares of Company Common Stock, Company Preferred Stock,
Company Options or other securities convertible into Company Common Stock to be
delivered to any Person hereunder shall be rounded to the nearest whole share
and no Person shall be entitled to receive scrip or payment in lieu of
fractional interests.
2.5 Dissenters' Rights.
2.5.1 Company Dissenting Shares. The Company shall give eCom
prompt notice of any shares of capital stock of the Company which are Dissenting
Shares (hereinafter referred to as "Company Dissenting Shares"). Any Company
Dissenting Shares shall not, after the Effective Time, be entitled to vote for
any purpose or receive any dividends or other
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distributions; except to the extent that the holder thereof subsequently
withdraws such holder's demand for payment in the manner provided under
applicable law, fails to comply fully with the requirements of applicable
provisions of applicable law, or otherwise fails to establish the right of such
shareholder to be paid the fair value of such shareholder's shares under
applicable law. The Company agrees that prior to the Effective Time it will not,
except with the prior written consent of eCom, voluntarily make any payment with
respect to, or settle or offer to settle, any such demand for payment of the
fair value of shares, and then, only to the extent so agreed to by eCom in such
writing.
2.5.2 eCom Dissenting Shares. eCom shall give the Company
prompt notice of any shares of capital stock of eCom which are Dissenting Shares
(hereinafter referred to as "eCom Dissenting Shares"). Any eCom Dissenting
Shares shall not, after the Effective Time, be entitled to vote for any purpose
or receive any dividends or other distributions; except to the extent that the
holder thereof subsequently withdraws such holder's demand for payment in the
manner provided under the Delaware General Corporation Law, fails to comply
fully with the requirements of applicable provisions of the Delaware General
Corporation Law, or otherwise fails to establish the right of such shareholder
to be paid the fair value of such shareholder's shares under the Delaware
General Corporation Law, in which case Section 2.4.5 hereof shall apply to such
shares. eCom agrees that prior to the Effective Time it will not, except with
the prior written consent of the Company, voluntarily make any payment with
respect to, or settle or offer to settle, any such demand for payment of the
fair value of shares, and then, only to the extent so agreed to by the Company
in such writing.
2.6 Procedure for Exchange.
2.6.1 Exchange Fund. On the day of the Effective Time, the
Company will deposit, or cause to be deposited, with the Exchange Agent, for the
benefit of the former holders of eCom Common Stock, eCom Preferred Stock, eCom
Options and other securities convertible into eCom Common Stock (hereinafter
referred to collectively as "eCom Securities"), certificates representing shares
of the Company Common Stock, Company Preferred Stock, Company Options and
securities convertible into Company Common Stock issuable pursuant to Sections
2.4.5 and 2.4.6 (hereinafter referred to collectively as "Company Securities")
to be issued in exchange for certificates representing eCom Securities
outstanding immediately prior to the Effective Time. Thereafter, the Company
will deposit, or cause to be deposited, with the Exchange Agent, for the benefit
of any former holders of eCom Securities who have not yet surrendered their
certificates evidencing eCom Securities for exchange, the amount of dividends or
other distributions, if any, with a record date after the Effective Time but
prior to surrender, payable with respect to any Company Securities remaining in
the Exchange Fund on such record date (such amount, if any, shall be deposited
on the appropriate payment date relating thereto). The Company Securities
deposited pursuant to this Section 2.6.1, together with any cash deposited from
time to time with the Exchange Agent pursuant to this Section 2.6, are
hereinafter referred to as the "Exchange Fund". No interest will be paid to any
shareholder on the cash comprising any portion of the Exchange Fund.
2.6.2 Delivery of Letter of Transmittal. Promptly after the
Effective Time, the Company will deliver irrevocable instructions to the
Exchange Agent to mail to each record holder of a certificate or certificates
representing eCom Securities immediately prior to the Effective Time (i) a
letter of transmittal which shall specify that delivery shall be effected, and
risk of loss and title to the certificates formerly representing eCom Securities
shall pass, only
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upon delivery of such certificates to the Exchange Agent and shall be in such
form and have such other provisions, including appropriate provisions with
respect to back-up withholding, as the Company may reasonably specify, and (ii)
instructions for effecting the surrender of the certificates formerly
representing eCom Securities.
2.6.3 Exchange Procedures. Promptly after the Effective Time,
the Exchange Agent will distribute to each former holder of eCom Securities,
upon surrender to the Exchange Agent of the certificate formerly representing
such eCom Securities for cancellation, together with the letter of transmittal
described above, executed and completed in accordance with the instructions
thereto, certificates evidencing the appropriate amount of the Company
Securities, into which such eCom Securities were converted or exchanged pursuant
to the Merger and dividends or distributions related thereto, if any, which such
former holder of eCom Securities is entitled to receive pursuant to the
provisions of this Section 2.6 (after giving effect to any required withholding
Tax), and the certificates formerly representing eCom Securities so surrendered
shall be canceled. If any Company Securities are to be issued to a Person other
than the Person in whose name the surrendered certificate or certificates is
registered, it will be a condition of issuance of such Company Securities that
the surrendered certificate or certificates shall be properly endorsed, with
signatures guaranteed by a member firm of the New York Stock Exchange or a bank
chartered under the laws of the United States, or otherwise in proper form for
transfer and that the Person requesting such payment shall pay any transfer or
other Taxes required by reason of the issuance of the Company Securities to a
Person other than the registered holder of the surrendered certificate or
certificates (or such Person shall establish to the satisfaction of the Company
that any such Tax has been paid or is not applicable). Notwithstanding the
foregoing, neither the Exchange Agent nor any party hereto will be liable to any
former holder of eCom Securities for any Company Securities or cash or dividends
or distributions thereon delivered to a public official pursuant to any
applicable escheat law.
2.6.4 Distributions with Respect to Unexchanged eCom
Securities. No dividends or other distributions declared or made with respect to
the Company Securities on or after the Effective Time will be paid to the holder
of any certificate that theretofore evidenced eCom Securities until the holder
of such certificate shall surrender such certificate. Subject to the effect of
any applicable escheat law, following surrender of any such certificate, there
will be paid from the Exchange Fund to the holder of the certificates evidencing
whole shares of the Company Securities issued in exchange therefor, without
interest, (i) promptly, the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such whole
shares of the Company Securities, and (ii) at the appropriate payment date, the
amount of dividends or other distributions, with a record date after the
Effective Time but prior to surrender and a payment date occurring after
surrender, payable with respect to such whole shares of the Company Securities.
2.6.5 Termination of Exchange Fund. Any portion of the
Exchange Fund which remains unclaimed by the former holders of eCom Securities
for twelve (12) months after the Effective Time will be delivered to the
Company, upon demand, and any former holders of eCom Securities who have not
theretofore complied with this Section 2.6 will, subject to applicable abandoned
property, escheat and other similar laws, thereafter look only to the Company
for any Company Securities and any cash to which they are entitled.
2.6.6 Withholding of Tax. The Company or the Exchange Agent
will be entitled
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to deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any former holder of eCom Securities such amounts as the Company or
the Exchange Agent are required to deduct and withhold with respect to the
making of such payment under the Code, or any other Tax law. To the extent that
amounts are so withheld by the Company or the Exchange Agent, such withheld
amounts will be treated for all purposes of this Agreement as having been paid
to the former holder of eCom Securities in respect of whom such deduction and
withholding was made by the Company.
2.6.7 Lost Certificates. If any certificate evidencing eCom
Securities shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such certificate to be lost,
stolen or destroyed and, if required by the Company, the posting by such Person
of a bond, in such reasonable amount as the Company may direct, as indemnity
against claims that may be made against it with respect to such certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
certificate, a certificate for the Company Securities to which the holder may be
entitled pursuant to this Section 2.6 and any other distributions to which the
holder thereof may be entitled pursuant to this Section 2.6.
2.7 Closing of Transfer Records. After the close of business on the
Closing Date, transfers of eCom Securities outstanding prior to the Effective
Time shall not be made on the stock transfer books of the Surviving Corporation.
3 Representations and Warranties of eCom. eCom represents and warrants
to the Company that the statements contained in this Section 3 are correct and
complete as of the date of this Agreement and will be correct and complete as
of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 3), except as
set forth in the eCom Disclosure Schedule and except for any changes
contemplated in Section 5.7 or 6.2 hereof. The eCom Disclosure Schedule will be
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Section 3.
3.1 Organization. eCom is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware. eCom is
duly qualified and in good standing to transact business in the State of New
York.
3.2 Capitalization. Section 3.2 of the eCom Disclosure Schedule sets
forth a description of the authorized capital stock of eCom, and the number of
issued and outstanding shares of such capital stock. Section 3.2 of the eCom
Disclosure Schedule also lists and provides a brief description of all
authorized and issued options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or commitments that could
require eCom to issue any of its capital stock. Except with respect to the
securities described in Section 3.2 of the eCom Disclosure Schedule, there are
no outstanding or authorized shares of capital stock or options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, or
other contracts or commitments that could require eCom to issue any of its
capital stock. All of the issued and outstanding shares of capital stock of eCom
have been duly authorized and are validly issued, fully paid, and nonassessable.
3.3 Authorization of Transaction. eCom has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder; provided, however, that eCom
cannot consummate the Merger unless and until it receives the Requisite eCom
Stockholder Approval. This Agreement constitutes the valid and legally binding
obligation of eCom, enforceable in accordance with its terms and
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conditions, subject to the effect of any applicable bankruptcy, insolvency or
similar laws affecting the enforcement of creditor's rights generally.
3.4 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which eCom is subject or any provision of the
certificate of incorporation or bylaws of eCom or (ii) conflict with, result in
a breach of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease, license, instrument or other
arrangement to which eCom is a party or by which it is bound or to which any of
its assets is subject (or result in the imposition of any Security Interest on
any of its assets), except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, or failure to give notice
would not have a material adverse effect on the ability of the Parties to
consummate the transactions contemplated by this Agreement. Other than in
connection with the provisions of the Delaware General Corporation Law, the
state securities laws, and Section 2.3(iii) hereof, eCom is not required to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement, except where the
failure to give notice, to file, or to obtain any authorization, consent, or
approval would not have a Material Adverse Effect on the ability of the Parties
to consummate the transactions contemplated by this Agreement.
3.5 Brokers' Fees. Except as set in Section 9.17 hereof, eCom does not
have any Liability or obligation to pay any fees or commissions to any broker,
finder, or agent with respect to the transactions contemplated by this Agreement
for which eCom or the Surviving Corporation could become liable or obligated.
3.6 Continuity of Business Enterprise. eCom operates at least one
significant historic business line and owns at least a significant portion
of its historic business assets, in each case within the meaning of Reg.
'SS'1.368-1(d) promulgated under the Code.
3.7 Title to Assets; Security Interests. eCom has good and marketable
title to, or a valid leasehold interest in or valid license to use, the
properties and assets used by it, located on its premises, or shown on the eCom
Most Recent Balance Sheet or acquired after the date thereof, free and clear of
all Security Interests, except for properties and assets disposed of in the
Ordinary Course of Business since the date of the eCom Most Recent Balance
Sheet.
3.8 Subsidiaries. eCom has no subsidiaries.
3.9 Financial Statements. Attached as Section 3.9 of the eCom
Disclosure Schedule are the following financial statements (collectively the
"eCom Financial Statements"): unaudited consolidated balance sheets and
statements of income, changes in stockholders' equity, and cash flow (the "eCom
Most Recent Financial Statements") as of and for the eleven months ended
September 30, 1999 (the "eCom Most Recent Fiscal Month End") for eCom. The eCom
Financial Statements (including the notes thereto) have been prepared in
accordance with accounting principles applied on a consistent basis throughout
the periods covered thereby, present fairly the financial condition of eCom as
of such dates and the results of operations of eCom for such periods, are
correct and complete, and are consistent with the books and records of eCom
(which books and records are correct and complete).
3.10 Events Subsequent to Most Recent Fiscal Month End. Since eCom Most
Recent Fiscal Month End, there has not been any material adverse change in the
business, financial
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condition, operations, results of operations, or future prospects of eCom.
Without limiting the generality of the foregoing, since that date, except as
required pursuant to the terms of the Letter Agreement, the Loan Agreement
and/or the Agency Agreement or as otherwise disclosed in Section 3.10 of the
eCom Disclosure Schedule:
3.10.1 eCom has not sold, leased, transferred, or assigned any
of its assets, tangible or intangible, other than for fair consideration in the
Ordinary Course of Business;
3.10.2 eCom has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, leases, and
licenses) involving more than $25,000 and outside the Ordinary Course of
Business, other than the Letter Agreement, the Loan Agreement and the Agency
Agreement;
3.10.3 no party (including eCom) has accelerated, terminated,
modified, or canceled any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, and licenses) involving more than $25,000
to which eCom is a party or by which eCom is bound;
3.10.4 eCom has not granted or agreed to grant any Security
Interest upon any of its assets, tangible or intangible;
3.10.5 eCom has not made any capital expenditure (or series of
related capital expenditures) involving more than $25,000 and outside the
Ordinary Course of Business;
3.10.6 eCom has not made any capital investment in, any loan
to, or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions) either involving
more than $25,000 or outside the Ordinary Course of Business;
3.10.7 eCom has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation either involving more than
$25,000 or outside the Ordinary Course of Business;
3.10.8 eCom has not delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary Course of Business;
3.10.9 eCom has not canceled, compromised, waived, or released
any right or claim (or series of related rights and claims) either involving
more than $25,000 or outside the Ordinary Course of Business;
3.10.10 eCom has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property outside the Ordinary
Course of Business;
3.10.11 there has been no change made or authorized in the
certificate of incorporation or bylaws of eCom;
3.10.12 except in connection with the Qualified Private
Placement, eCom has not issued, sold, or otherwise disposed of any of its
capital stock, or granted any options, warrants, or other rights to purchase or
obtain (including upon conversion, exchange, or exercise) any of its capital
stock;
3.10.13 eCom has not declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in cash or
in kind) or redeemed, purchased, or otherwise acquired any of its capital stock;
3.10.14 eCom has not experienced any damage, destruction, or
loss
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(whether or not covered by insurance) to its property;
3.10.15 eCom has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees outside
the Ordinary Course of Business;
3.10.16 except as disclosed in the eCom Disclosure Schedule,
eCom has not entered into any employment contract or collective bargaining
agreement, written or oral, or modified the terms of any existing such contract
or agreement;
3.10.17 eCom has not granted any increase in the compensation
of or changed any of the employment terms for any of its directors, officers,
and employees outside the Ordinary Course of Business;
3.10.18 eCom has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, and employees (or
taken any such action with respect to any other Employee Benefit Plan);
3.10.19 eCom has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
3.10.20 there has been no loss of a major customer of eCom or
dispute with any major customer or supplier of eCom which has had or is likely
to have a Material Adverse Effect with respect to eCom;
3.10.21 there has not been any other material occurrence,
event, incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving eCom; and
3.10.22 eCom has not committed to any of the foregoing.
3.11 Undisclosed Liabilities. eCom has no Liability (and there is no
Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability), except for (i) Liabilities set forth on the face of the
eCom Most Recent Balance Sheet (rather than in any notes thereto), (ii)
Liabilities which have arisen after the eCom Most Recent Fiscal Month End in the
Ordinary Course of Business (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law) and (iii) Liabilities
disclosed in Section 3.11 of the eCom Disclosure Schedule.
3.12 Legal Compliance. eCom has complied in all material respects with
all applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced against it alleging any failure so to comply.
3.13 Tax Matters.
3.13.1 eCom has not been required to file any Tax Returns. All
Taxes owed by eCom (whether or not shown on any Tax Return) have been paid or
adequate reserves have been established to cover any such Taxes. eCom currently
is not the beneficiary of any extension of time within which to file any Tax
Return. No claim has ever been made by an authority in a jurisdiction where eCom
does not file Tax Returns that it is or may be subject to
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taxation by that jurisdiction. There are no Security Interests on the assets of
eCom that arose in connection with any failure (or alleged failure) to pay any
Tax.
3.13.2 eCom has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
3.13.3 There is no dispute or claim concerning any Tax
Liability of eCom either (A) claimed or raised by any authority in writing or
(B) as to which eCom has Knowledge.
3.13.4 eCom has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
3.13.5 The unpaid Taxes of eCom did not, as of the eCom Most
Recent Fiscal Month End, materially exceed the reserve for Tax Liability (rather
than any reserve for deferred Taxes established to reflect temporary differences
between book and Tax income) set forth on the face of the eCom Most Recent
Balance Sheet (rather than in any notes thereto).
3.14 Real Property.
3.14.1 eCom does not own any real property.
3.14.2 Section 3.14.2 of eCom Disclosure Schedule lists and
describes briefly all real property used by eCom. eCom has delivered to the
Company correct and complete copies of such leases and subleases and other
agreements relating to such real property (including all amendments thereto).
With respect to each such lease, sublease and agreement:
3.14.2.1 the lease, sublease or agreement is legal,
valid, binding, enforceable, and in full force and effect;
3.14.2.2 the lease, sublease or agreement will
continue to be legal, valid, binding, enforceable, and in full force and effect
on the terms set forth in such lease, sublease or agreement, following the
consummation of the transactions contemplated hereby;
3.14.2.3 neither eCom, nor to eCom's Knowledge, any
other party to the lease, sublease or agreement is in material breach or
default, and no event has occurred which, with notice or lapse of time, would
constitute a material breach or default or permit termination, modification, or
acceleration thereunder;
3.14.2.4 neither eCom nor, to eCom's Knolwedge, any
other party to the lease, sublease or agreement has repudiated any provision
thereof;
3.14.2.5 to eCom's Knowledge, there are no disputes,
oral agreements, or forbearance programs in effect as to the lease, sublease or
agreement;
3.14.2.6 eCom has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold;
3.14.2.7 to eCom's Knowledge, all facilities
described in Section 3.14.2 of the eCom Disclosure Schedule have received all
approvals of governmental authorities (including licenses and permits) required
in connection with the operation thereof and have been operated and maintained
in all material respects in accordance with applicable laws, rules, and
regulations; and
3.14.2.8 all of the facilities described in Section
3.14.2 of the eCom Disclosure Schedule are currently supplied with utilities.
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3.15 Intellectual Property.
3.15.1 eCom owns, or has the right to use pursuant to a
License, all Intellectual Property necessary for the operation of its business,
as presently conducted. Each item of Intellectual Property owned or controlled
by eCom immediately prior to the Closing hereunder will be owned or available
for use by the Surviving Corporation on substantially identical terms and
conditions immediately subsequent to the Closing hereunder. eCom has taken all
actions which it deemed to be reasonably necessary to maintain and protect each
item of Intellectual Property that it owns or controls.
3.15.2 Section 3.15.2 of the eCom Disclosure Schedule sets
forth a list of all Internet domain names registered in the name of eCom and
used by eCom in its business. eCom has, and after the Effective Time the
Surviving Corporation will have, a valid registration in and to all such
Internet domain names including, without limitation, all rights necessary to
continue to conduct eCom's business as it is currently conducted under such
names.
3.15.3 To eCom's Knowledge, eCom has not interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and to eCom's knowledge, eCom has
not received any charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any claim
that eCom must license or refrain from using any Intellectual Property rights of
any third party). To the Knowledge of eCom, no third party is interfering with,
infringing upon, misappropriating, or otherwise coming into conflict with any
Intellectual Property rights of eCom.
3.15.4 Section 3.15.4 of the eCom Disclosure Schedule
identifies each patent, trademark, and copyright registration which has been
issued to eCom and each pending application for patent, trademark or copyright
registration which eCom has made with respect to any of its Intellectual
Property, and identifies each material License which eCom has granted to any
third party with respect to any of its Intellectual Property. eCom has made
available to the Company for inspection and duplication correct and complete
copies of all such registrations, applications and Licenses (as amended to date)
and has made available to the Company correct and complete copies of all other
written documentation evidencing ownership and prosecution (if applicable) of
each such item. Section 3.15.4 of the eCom Disclosure Schedule also identifies
each trade name or material unregistered trademark used by eCom in connection
with any of its businesses. Except as set forth in Section 3.15.4 of the eCom
Disclosure Schedule, with respect to each item of Intellectual Property
disclosed in Section 3.15.4 of the eCom Disclosure Schedule:
3.15.4.1 eCom possesses all right, title, and
interest in and to the item, free and clear of any Security Interest, license,
or other restriction;
3.15.4.2 the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
3.15.4.3 no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to eCom's
Knowledge, is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
3.15.4.4 eCom has never agreed to indemnify any
Person for or against any interference, infringement, misappropriation, or other
conflict with respect to such item outside the Ordinary Course of Business.
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3.15.5 Section 3.15.5 of the eCom Disclosure Schedule
identifies each material item of Intellectual Property that any third party owns
and that eCom uses pursuant to a License (other than any off-the-shelf and other
Intellectual Property generally available via shrink wrap or click wrap
agreements). eCom has delivered to the Company correct and complete copies of
all such Licenses (as amended to date). With respect to each item of
Intellectual Property required to be identified in Section 3.15.5 of the eCom
Disclosure Schedule:
3.15.5.1 the License covering the item is legal,
valid, binding, enforceable, and in full force and effect;
3.15.5.2 such Licenses will continue to be legal,
valid, binding, enforceable, and in full force and effect following the Closing;
3.15.5.3 neither eCom nor, to eCom's Knowledge, any
other party to the License is in material breach or default, and to eCom's
Knowledge, no event has occurred which with notice or lapse of time would
constitute a material breach or default or permit termination, modification, or
acceleration thereunder;
3.15.5.4 neither eCom nor, to eCom's Knowledge, any
other party to the License has repudiated any provision thereof;
3.15.5.5 to eCom's Knowledge, the underlying item of
Intellectual Property is not subject to any outstanding injunction, judgment,
order, decree, ruling, or charge;
3.15.5.6 no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to the
Knowledge of eCom, is threatened which challenges the legality, validity, or
enforceability of the underlying item of Intellectual Property; and
3.15.5.7 eCom has not granted any sublicense or
similar right with respect to the License outside the Ordinary Course of
Business or that would constitute a material breach of any such License.
3.15.6 To the Knowledge of eCom, eCom will not interfere with,
infringe upon, misappropriate, or otherwise come into conflict with, any
Intellectual Property rights of third parties as a result of the continued
operation of its businesses as presently conducted.
3.15.7 The Interworld Commerce Exchange Software licensed by
eCom from Interworld Corporation (the "Interworld Software") is capable of
operation on a Solaris (Unix) platform with an Oracle database and an Apache Web
Server platform and eCom has the right to integrate additional software
applications with the Interworld Software which will operate in conjunction with
the Interworld Software; provided, however, that such rights do not include the
right to modify, enhance or change the source code of the Interworld Software.
3.16 Tangible Assets. eCom owns or leases all buildings, machinery,
equipment, and other tangible assets necessary for the conduct of its business
as presently conducted. Each such tangible asset is free from material defects
(patent and latent), has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal wear and
tear), and is suitable for the purposes for which it presently is used.
3.17 Contracts. Section 3.17 of the eCom Disclosure Schedule lists the
following contracts and other agreements to which eCom is a party and which are
currently in force and effect:
3.17.1 any agreement (or group of related agreements) for the
lease of personal
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property to or from any Person providing for lease payments in excess of $25,000
per annum;
3.17.2 any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the performance
of which will extend over a period of more than one (1) year, result in a
material loss to eCom, or involve consideration in excess of $25,000;
3.17.3 any agreement concerning a partnership or joint
venture;
3.17.4 any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, in excess of $25,000 or
under which it has granted a Security Interest on any of its assets, tangible or
intangible;
3.17.5 any agreement concerning confidentiality or
noncompetition (other than any such agreements which are entered into in the
Ordinary Course of Business and which will not have any Material Adverse Effect
with respect to eCom);
3.17.6 any agreement between eCom and any of the eCom
Stockholders or any Affiliate of any eCom Stockholder;
3.17.7 any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers, and
employees;
3.17.8 any collective bargaining agreement;
3.17.9 any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual compensation
in excess of $25,000 or providing severance benefits;
3.17.10 any agreement under which it has advanced or loaned
any amount which remains outstanding as of the date hereof, to any of its
directors, officers, and employees outside the Ordinary Course of Business;
3.17.11 any agreement under which the consequences of a
default or termination could have a Material Adverse Effect with respect to
eCom; or
3.17.12 any other agreement (or group of related agreements)
the performance of which involves consideration in excess of $50,000.
eCom has made available to the Company for inspection and duplication a correct
and complete copy of each written agreement listed in Section 3.17 of the eCom
Disclosure Schedule (as amended to date) and a written summary setting forth the
terms and conditions of each oral agreement referred to in Section 3.17 of the
eCom Disclosure Schedule. With respect to each such agreement: (A) the agreement
is legal, valid, binding, enforceable, and in full force and effect; (B) the
agreement will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) eCom, and to eCom's Knowledge, no other
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) to eCom's Knowledge,
no party has repudiated any provision of the agreement.
3.18 Notes and Accounts Receivable. Other than with respect to the Loan
Agreement, all notes and accounts receivable of eCom are reflected properly on
their books and records,
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are valid receivables subject to no setoffs or counterclaims, are current and
collectible, and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts set forth on the
face of the eCom Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of eCom.
3.19 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of eCom.
3.20 Insurance. Section 3.20 of the eCom Disclosure Schedule lists each
insurance policy (including policies providing property, casualty, liability,
and workers' compensation coverage and bond and surety arrangements) to which
eCom is a party, a named insured, or otherwise the beneficiary of coverage. With
respect to each such insurance policy: (A) the policy is legal, valid, binding,
enforceable, and in full force and effect; (B) the policy will continue to be
legal, valid, binding, enforceable, and in full force and effect on
substantially similar terms following the consummation of the transactions
contemplated hereby after notice to the insurer; (C) neither eCom, nor to eCom's
Knowledge, any other party to the policy is in breach or default (including with
respect to the payment of premiums or the giving of notices), and no event has
occurred which, with notice or the lapse of time, would constitute such a breach
or default, or permit termination, modification, or acceleration, under the
policy; and (D) to eCom's Knowledge, no party to the policy has repudiated any
provision thereof. In addition, eCom has maintained self-insurance arrangements
for the businesses in which it has engaged.
3.21 Litigation. Section 3.21 of the eCom Disclosure Schedule sets
forth each instance in which eCom (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) is a party or, to eCom's
Knowledge, is threatened to be made a party to any action, suit, proceeding,
hearing, or investigation of, in, or before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator. None of the actions, suits, proceedings, hearings, and
investigations set forth in Section 3.21 of the eCom Disclosure Schedule could
result in any material adverse change in the business, financial condition,
operations, results of operations, or future prospects of eCom. eCom has no
reason to believe that any such similar action, suit, proceeding, hearing, or
investigation may be brought or threatened against eCom.
3.22 Product Warranty. Each product manufactured, sold, leased, or
delivered by eCom has been in conformity in all material respects with all
applicable contractual commitments and all express and implied warranties, and
to eCom's Knowledge, eCom does not have any material Liability (and, to eCom's
Knowledge, there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against any of them
giving rise to any material Liability) for replacement or repair thereof or
other damages in connection therewith, subject only to the reserve for product
warranty claims set forth on the face of the eCom Most Recent Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of eCom. No
product manufactured, sold, leased, or delivered by eCom is subject to any
guaranty, warranty, or other indemnity beyond the applicable standard terms and
conditions of sale or lease.
3.23 Product Liability. To eCom's Knowledge, eCom does not have any
Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) arising out of any injury to
individuals or property as a result of the ownership, possession, or use of any
product manufactured, sold, leased, or delivered by eCom.
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3.24 Employees. To eCom's Knowledge, none of eCom's officers, key
employees, or group of employees has any plans to terminate employment with
eCom. eCom is not a party to or bound by any collective bargaining agreement,
nor has it experienced any strikes, grievances, claims of unfair labor
practices, or other collective bargaining disputes. eCom has not committed any
unfair labor practices. eCom does not know of any organizational effort
presently being made or threatened by or on behalf of any labor union with
respect to employees of eCom.
3.25 Employee Benefits. Employee Benefits.
3.25.1 Definitions. For the purpose of this Section 3.25 and
for Section 4.26 below, the following terms shall have the meanings set forth
below:
i. "COBRA" shall mean the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended;
ii. "Employee Benefit Plan" means any (i)
nonqualified deferred compensation or retirement
plan or arrangement, (ii) qualified defined
contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (iii)
qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit
Plan (including any Multi-employer Plan ), or
(iv) Employee Welfare Benefit Plan or material
fringe benefit or other retirement, bonus, or
incentive plan or program.
iii. "Employee Pension Benefit Plan" has the meaning
set forth in Section 3(2) of ERISA.
iv. "Employee Welfare Benefit Plan" has the meaning
set forth in Section 3(1) of ERISA.
v. "Employee" shall mean any current, former, or
retired employee, consultant, or member of the
Company or eCom, as applicable;
vi. "Employee Agreement" shall refer to each
management, employment, stock purchase,
severance, separation, consulting, relocation,
loan, repatriation, expatriation, Visas, work
permit or similar agreement, contract or
arrangement between the Company or eCom, as
applicable, or any ERISA Affiliate and any
Employee;
vii. "ERISA Affiliate" means each entity which is
treated as a single employer with the Company or
eCom, as applicable, for purposes of Section 414
of the Code.
3.25.2 Section 3.25 of the eCom Disclosure Schedule lists each
Employee Benefit Plan that eCom maintains or to which eCom contributes or has
any obligation to contribute.
3.25.2.1 All required reports and descriptions
(including Form 5500 Annual Reports, summary annual reports, and summary plan
descriptions) have been timely filed and distributed appropriately with respect
to the Employee Welfare Benefit Plan of eCom (hereinafter referred to as the
"eCom Group Health Medical Plan"). The requirements of COBRA have been met with
respect to the eCom Group Health Medical Plan.
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3.25.2.2 All premiums or other payments for all
periods ending on or before the Closing Date have been paid with respect to the
eCom Group Health Medical Plan.
3.25.2.3 eCom has made available to the Company for
inspection and duplication correct and complete copies of the plan documents and
summary plan descriptions, the most recent Form 5500 Annual Report, and all
related insurance contracts, and other agreements which implement the eCom Group
Health Medical Plan.
3.25.3 eCom does not maintain or ever has maintained, or
contribute or ever has contributed, or ever has been required to contribute to
any Employee Welfare Benefit Plan providing medical, health, or life insurance
or other welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents, other than in accordance with
Section 4980B of the Code.
3.26 Environmental, Health, and Safety Matters.
3.26.1 To eCom's Knowledge, eCom has complied and is in
compliance in all material respects with all Environmental, Health, and Safety
Requirements.
3.26.2 Without limiting the generality of the foregoing, to
eCom's Knowledge, eCom has obtained and complied with, and is in compliance
with, all material permits, licenses and other authorizations that are required
pursuant to Environmental, Health, and Safety Requirements for the occupation of
its facilities and the operation of its business.
3.26.3 eCom has not received any written or, to eCom's
Knowledge, oral notice, report or other information regarding any actual or
alleged violation of Environmental, Health, and Safety Requirements, or any
liabilities or potential liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), including any investigatory, remedial or corrective
obligations, relating to any of them or its facilities arising under
Environmental, Health, and Safety Requirements.
3.26.4 To eCom's Knowledge, none of the following exists at
any property or facility owned or operated by eCom: (1) underground storage
tanks, (2) asbestos-containing material in any form or condition, (3) materials
or equipment containing polychlorinated biphenyls, or (4) landfills, surface
impoundments, or disposal areas.
3.26.5 To eCom's Knowledge, eCom has not treated, stored,
disposed of, arranged for or permitted the disposal of, transported, handled, or
released any substance, including without limitation any hazardous substance, or
owned or operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or would give
rise to any material liability under any Environmental, Health, and Safety
Requirement.
3.26.6 To eCom's Knowledge, neither this Agreement nor the
consummation of the transaction that is the subject of this Agreement will
result in any obligations for site investigation or cleanup, or notification to
or consent of government agencies or third parties, pursuant to any of the
so-called "transaction-triggered" or "responsible property transfer"
Environmental, Health, and Safety Requirements.
3.26.7 To eCom's Knowledge, eCom has not, either expressly or
by operation of law, assumed or undertaken any material liability, including
without limitation any material obligation for corrective or remedial action, of
any other Person relating to Environmental, Health, and Safety Requirements.
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3.26.8 To eCom's Knowledge, no facts, events or conditions
relating to the past or present facilities, properties or operations of eCom
will prevent, hinder or limit continued compliance in any material respect with
Environmental, Health, and Safety Requirements, give rise to any material
investigatory, remedial or corrective obligations pursuant to Environmental,
Health, and Safety Requirements, or give rise to any other material liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise) pursuant to
Environmental, Health, and Safety Requirements
3.27 Year 2000. None of the computer software, computer firmware,
computer hardware (whether general or special purpose) or other similar or
related items of automated, computerized or software systems that are owned or
controlled by eCom in the conduct of its business, and, to eCom's knowledge,
none of the products and services sold, licensed, rendered or otherwise provided
by eCom in the conduct of its business will experience a Y2K Problem. eCom has
communicated with its suppliers and customers to determine if any of such
suppliers or customers expect to experience any Y2K Problems which may affect
eCom, and eCom is not aware of any such Y2K Problems with respect to such
suppliers or customers.
eCom has not made any warranties regarding the ability of any product
or service sold, licensed, rendered, or otherwise provided by eCom in the
conduct of its business to operate without malfunction, to operate without
ceasing to function, to generate correct data or to produce correct results when
processing, providing or receiving (i) date-related data from, into and between
the twentieth and twenty-first centuries and (ii) date-related data in
connection with any valid date in the twentieth and twenty-first centuries.
3.28 Certain Business Relationships With the Company. Except as set
forth in Section 3.28 of the eCom Disclosure Schedule, none of the eCom
Stockholders or, to eCom's Knowledge, any Affiliate of any eCom Stockholder, has
been involved in any business arrangement or relationship with eCom within the
past twelve (12) months (other than the purchase and ownership of any securities
of eCom by such eCom Stockholder) and none of the eCom Stockholders or, to
eCom's Knowledge, any Affiliate of any eCom Stockholder, owns any asset,
tangible or intangible, which is used in the business of eCom.
3.29 Takeover Statutes. No takeover statute applicable to eCom would
restrict or adversely affect the ability of the Parties to consummate the
Merger. eCom has not adopted any shareholder rights plan or similar "poison
pill" arrangement, provision or understanding.
3.30 Disclosure. The representations and warranties contained in this
Section 3 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 3 not misleading.
3.31 Private Placement Memorandum. The Private Placement Memorandum
does not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. Except upon the consent of the Company (which shall not be
unreasonably withheld), eCom shall use the proceeds of the Qualified Private
Placement substantially in the manner described in the Private Placement
Memorandum.
4 Representations and Warranties of the Company. The Company represents
and warrants to eCom that the statements contained in this Section 4 are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this
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Agreement throughout this Section 4), except as set forth in the Company
Disclosure Schedule or as contemplated by Sections 5.2 and 6.1 hereof. The
Company Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Section 4.
4.1 Organization of the Company. Except as set forth in Section 4.1 of
the Company Disclosure Schedule, the Company is a corporation duly organized,
validly existing, and in good standing under the laws of the State of New
Jersey.
4.2 Capitalization. Section 4.2 of the Company Disclosure Schedule sets
forth a description of the authorized capital stock of the Company, and the
number of issued and outstanding shares of such capital stock. Section 4.2 of
the Company Disclosure Schedule also lists and provides a brief description of
all authorized and issued options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Company to issue any of its capital stock. Other than as
contemplated by this Agreement and/or the Loan Agreement, and except with
respect to the securities described in Section 4.2 of the Company Disclosure
Schedule, there are no outstanding or authorized shares of capital stock or
options, warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require the
Company to issue any of its capital stock. All of the issued and outstanding
shares of capital stock of the Company have been duly authorized and are validly
issued, fully paid, and nonassessable, and the Company Shares to be issued in
the Merger have been duly authorized and, upon consummation of the Merger in
accordance with the terms hereof, will be validly issued, fully paid, and
nonassessable. There are not more than 5,400,000 shares of Company Common Stock
issued and outstanding (calculated on a fully-diluted basis, assuming the
conversion or exercise of all options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or obligations
that could require the Company to issue any shares of its capital stock, other
than this Agreement).
4.3 Authorization of Transaction. The Company has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder; provided, however, that
the Company cannot consummate the Merger unless and until it receives the
Requisite Company Stockholder Approval. This Agreement constitutes the valid and
legally binding obligation of the Company, enforceable in accordance with its
terms and conditions subject to the effect of any applicable bankruptcy,
insolvency or similar laws affecting the enforcement of creditor's rights
generally.
4.4 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby will (i)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Company is subject or any provision
of the certificate of incorporation or bylaws of the Company or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Company is a party or by which it
is bound or to which any of its assets is subject (or result in the imposition
of any Security Interest upon any of its assets) except where the violation,
conflict, breach, default, acceleration, termination, modification,
cancellation, or failure to give notice would not have a material adverse effect
on the ability of the Parties to consummate the transactions contemplated by
this Agreement. Other than in connection with the provisions of the NJBCA, the
Delaware General Corporation Law, the Securities Act, the Securities Exchange
Act, the
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state securities laws, and Section 2.3(iii) hereof, the Company is not required
to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for the
Parties to consummate the transactions contemplated by this Agreement, except
where the failure to give notice, to file, or to obtain any authorization,
consent, or approval would not have a Material Adverse Effect on the ability of
the Parties to consummate the transactions contemplated by this Agreement.
4.5 Brokers' Fees. Except as described in Section 4.5 of the Company
Disclosure Schedule or Section 9.17 hereof, the Company does not have any
Liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement for which
eCom or the Surviving Corporation could become liable or obligated.
4.6 Disclosure. The Company Proxy Materials will comply with the
applicable provisions of the Securities Act and the Securities Exchange Act in
all material respects. The Company Proxy Materials will not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made therein, in the light of the circumstances under
which they will be made, not misleading; provided, however, that the Company
makes no representation or warranty with respect to any information that eCom
will supply specifically for use in the Company Proxy Materials.
4.7 Title to Assets; Security Interests. The Company has good and
marketable title to, or a valid leasehold interest in or valid license to use,
the properties and assets used by it, located on its premises, or shown on the
Company Most Recent Balance Sheet or acquired after the date thereof, free and
clear of all Security Interests, except for properties and assets disposed of in
the Ordinary Course of Business since the date of the Company Most Recent
Balance Sheet and as otherwise set forth in Section 4.7 of the Company
Disclosure Schedule.
4.8 Subsidiaries. The Company has no subsidiaries.
4.9 Financial Statements. Attached as Section 4.9 of the Company
Disclosure Schedule are the following financial statements (collectively the
"Company Financial Statements"): (i) audited consolidated and unaudited
consolidated balance sheets and statements of income, changes in stockholders'
equity, and cash flow as of and for the fiscal years ended September 30, 1997
and September 30, 1998 (the "Company Most Recent Fiscal Year End") for the
Company; and (ii) unaudited consolidated balance sheets and statements of
income, changes in stockholders' equity, and cash flow (the "Company Most Recent
Financial Statements") as of and for the nine (9) months ended June 30, 1999
(the "Company Most Recent Fiscal Quarter End") for the Company. Except as set
forth in Schedule 4.9 of the Company Disclosure Schedule, the Company Financial
Statements (including the notes thereto) have been prepared in accordance with
GAAP, applied on a consistent basis throughout the periods covered thereby,
present fairly the financial condition of the Company as of such dates and the
results of operations of the Company for such periods, are correct and complete,
and are consistent with the books and records of the Company (which books and
records are correct and complete in all material respects) subject to normal and
recurring year-end adjustments which may be required with respect to the Company
Most Recent Financial Statements; provided, however, that there may hereafter
arise required adjustments to the Company Most Recent Financial Statements which
are not normal and recurring year-end adjustments and which are not set forth on
Schedule 4.9 of the Company Disclosure Schedule, and, when provided to eCom
following the date hereof will be included on Schedule 4.9 of the Company
Disclosure Schedule so long as such adjustments do not result in the net worth
of the Company as of June 30, 1999 being less than $1.5 million (and provided
further that such adjustments up to $370,000 shall not be taken into account in
reaching the indemnification threshold set forth in the indemnification
agreement referred to in Section 6.1.12 hereof).
4.10 Events Subsequent to Most Recent Fiscal Quarter End. Since the
Company Most Recent Fiscal Quarter End, there has not been any material adverse
change in the business, financial condition, operations, results of operations,
or future prospects of the Company. Without limiting the generality of the
foregoing, since that date, except as required
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by the terms of the Letter Agreement and/or the Loan Agreement or as set forth
in Section 4.10 of the Company Disclosure Schedule:
4.10.1 the Company has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for fair
consideration in the Ordinary Course of Business;
4.10.2 the Company has not entered into any agreement,
contract, lease, or license (or series of related agreements, contracts, leases,
and licenses) involving more than $25,000 and outside the Ordinary Course of
Business, other than the Loan Agreement and the Letter Agreement;
4.10.3 no party (including the Company) has accelerated,
terminated, modified, or canceled any agreement, contract, lease, or license (or
series of related agreements, contracts, leases, and licenses) involving more
than $25,000 to which the Company is a party or by which the Company is bound;
4.10.4 the Company has not granted or agreed to grant any
Security Interest upon any of its assets, tangible or intangible;
4.10.5 the Company has not made any capital expenditure (or
series of related capital expenditures) involving more than $25,000 and outside
the Ordinary Course of Business;
4.10.6 the Company has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions) either involving
more than $25,000 or outside the Ordinary Course of Business;
4.10.7 the Company has not issued any note, bond, or other
debt security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation either involving more than
$25,000 or outside the Ordinary Course of Business, other than pursuant to and
as required by the Loan Agreement;
4.10.8 the Company has not delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary Course of Business,
except for any delays or postponements that would not, in the aggregate, result
in any Material Adverse Effect with respect to the Company;
4.10.9 the Company has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims) either
involving more than $25,000 or outside the Ordinary Course of Business;
4.10.10 the Company has not granted any license or sublicense
of any rights under or with respect to any Intellectual Property outside the
Ordinary Course of Business;
4.10.11 except as required by the terms of this Agreement,
there has been no change made or authorized in the certificate of incorporation
or bylaws of the Company;
4.10.12 the Company has not issued, sold, or otherwise
disposed of any of its capital stock, or granted any options, warrants, or other
rights to purchase or obtain (including upon conversion, exchange, or exercise)
any of its capital stock;
4.10.13 the Company has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock (whether in
cash or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
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4.10.14 the Company has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its property;
4.10.15 the Company has not made any loan to, or entered into
any other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business;
4.10.16 the Company has not entered into any employment
contract or collective bargaining agreement, written or oral, or modified the
terms of any existing such contract or agreement;
4.10.17 the Company has not granted any increase in the
compensation of or changed any of the employment terms for any of its directors,
officers, and employees outside the Ordinary Course of Business;
4.10.18 the Company has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other plan,
contract, or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other Employee Benefit
Plan), other than in the manner set forth in the proxy statement delivered to
the Company Stockholders pursuant to the most recent meeting of the Company
Stockholders prior to the date hereof or as set forth on the Company Disclosure
Schedule;
4.10.19 the Company has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course of
Business;
4.10.20 there has been no loss of a major customer of the
Company or dispute with any major customer or supplier of the Company which has
had or is likely to have a Material Adverse Effect with respect to the Company;
4.10.21 there has not been any other material occurrence,
event, incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving the Company; and
4.10.22 The Company has not committed to any of the foregoing.
4.11 Undisclosed Liabilities. The Company has no Liability (and there
is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability), except for (i) Liabilities set forth on the face of the
Company Most Recent Balance Sheet (rather than in any notes thereto), (ii)
Liabilities which have arisen after the Company Most Recent Fiscal Quarter End
in the Ordinary Course of Business (none of which results from, arises out of,
relates to, is in the nature of, or was caused by any breach of contract, breach
of warranty, tort, infringement, or violation of law) and (iii) Liabilities
disclosed in Section 4.11 of the Company Disclosure Schedule.
4.12 Legal Compliance. The Company has complied in all material
respects with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments (and all agencies thereof), and
no action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against it alleging any failure so
to comply.
4.13 SEC Filings. The Company has filed all forms, reports and
documents required to be filed by the Company with the SEC since January 1, 1997
and has made available to eCom such forms, reports and documents in the form
filed with the SEC. All such required
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forms, reports and documents are referred to herein as the "Company SEC
Reports." As of their respective dates, the Company SEC Reports (i) were
prepared in accordance with the requirements of the Securities Act or the
Securities Exchange Act, as the case may be, and the rules and regulations of
the SEC thereunder applicable to such Company SEC Reports and (ii) did not at
the time they were filed contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. Taken as a whole, the Company SEC Reports do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except to the extent superseded, updated or corrected prior to the
date of this Agreement by a subsequently filed Company SEC Report; provided that
the incorrect information or omission which has been superseded, updated or
corrected will not have any Material Adverse Effect with respect to the Company
or the Surviving Corporation. All material agreements filed by the Company as
exhibits to Company SEC Reports were executed by all parties thereto and, to the
Company's Knowledge, such agreements as displayed on the World Wide Web via the
EDGAR Service conform in all material respects to the agreements as so executed.
Except as set forth in Section 4.13 of the Company Disclosure Schedule, to the
Company's Knowledge, all Affiliates of the Company have filed all forms, reports
and documents required to be filed by each such Person with the SEC since
January 1, 1997.
4.14 Tax Matters.
4.14.1 Except as set forth in Section 4.14 of the Company
Disclosure Schedule, the Company has timely filed all Tax Returns that it has
been required to file. All such Tax Returns were correct and complete in all
material respects. All Taxes owed by the Company (whether or not shown on any
Tax Return) have been paid or adequate reserves have been established to cover
any such Taxes. The Company currently is not the beneficiary of any extension of
time within which to file any Tax Return. No Tax Return of the Company is
currently the subject of any audit, examination or similar proceeding. No claim
has ever been made by an authority in a jurisdiction where the Company does not
file Tax Returns that it is or may be subject to taxation by that jurisdiction.
There are no Security Interests on the assets of the Company that arose in
connection with any failure (or alleged failure) to pay any Tax.
4.14.2 Except as set forth in Section 4.14 of the Company
Disclosure Schedule, the Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party.
4.14.3 There is no dispute or claim concerning any Tax
Liability of the Company either (A) claimed or raised by any authority in
writing or (B) as to which the Company has Knowledge. Section 4.14 of the
Company Disclosure Schedule lists all federal, state, local, and foreign income
Tax Returns filed for the past three (3) years with respect to the Company
indicating those Tax Returns that have been audited, and indicating those Tax
Returns that currently are the subject of audit. The Company has made available
to eCom for inspection and duplication correct and complete copies as filed of
all federal income Tax Returns of the Company for the past three (3) years,
examination reports, and statements of deficiencies assessed against or agreed
to by the Company during the past three (3) years.
4.14.4 The Company has not waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
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4.14.5 The unpaid Taxes of the Company (A) did not, as of the
Company Most Recent Fiscal Quarter End, materially exceed the reserve for Tax
Liability (rather than any reserve for deferred Taxes established to reflect
temporary differences between book and Tax income) set forth on the face of the
Company Most Recent Balance Sheet (rather than in any notes thereto) and (B) do
not materially exceed that reserve as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of the Company
in filing its Tax Returns as listed in Section 4.14 of the Company Disclosure
Schedule.
4.15 Real Property.
4.15.1 The Company does not own any real property.
4.15.2 Section 4.15.2 of the Company Disclosure Schedule lists
and describes briefly all real property leased to or used by the Company. The
Company has made available to eCom for inspection and duplication correct and
complete copies of all leases and other occupancy agreements relating to such
real property (including all amendments thereto). With respect to each such
lease or agreement:
4.15.2.1 the lease or occupancy agreement is legal,
valid, binding, enforceable, and in full force and effect;
4.15.2.2 the lease or occupancy agreement will
continue to be legal, valid, binding, enforceable, and in full force and effect
on the terms set forth in such lease or occupancy agreement following the
consummation of the transactions contemplated hereby;
4.15.2.3 except as set forth in Section 4.15.2 of the
Company Disclosure Schedule, the Company and, to the Company's Knowledge, no
other party to the lease or occupancy agreement is in material breach or
default, and no event has occurred which, with notice or lapse of time, would
constitute a material breach or default or permit termination, modification, or
acceleration thereunder;
4.15.2.4 the Company and, to the Company's Knowledge,
no other party to the lease or occupancy agreement has repudiated any provision
thereof;
4.15.2.5 except as set forth in Section 4.15.2 of the
Company Disclosure Schedule, to the Company's Knowledge, there are no disputes,
oral agreements, or forbearance programs in effect as to the lease or occupancy
agreement;
4.15.2.6 the Company has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any interest in the
leasehold;
4.15.2.7 to the Company's Knowledge, all facilities
described in Section 4.15.2 of the Company Disclosure Schedule have received all
approvals of governmental authorities (including licenses and permits) required
in connection with the operation thereof and have been operated and maintained
in all material respects in accordance with applicable laws, rules, and
regulations; and
4.15.2.8 all facilities described in Section 4.15.2.8
of the Company Disclosure Schedule are currently supplied with utilities.
4.16 Intellectual Property.
4.16.1 The Company owns or has the right to use pursuant to
License all Intellectual Property necessary for the operation of its business,
as presently conducted. Each item of Intellectual Property owned or controlled
by the Company immediately prior to the Closing hereunder will be owned or
available for use by the Surviving Corporation on
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substantially identical terms and conditions immediately subsequent to the
Closing hereunder. The Company has taken all actions which it deemed to be
reasonably necessary to maintain and protect each item of Intellectual Property
that it owns or controls.
4.16.2 Domain Names. Section 4.16.2 of the Company Disclosure
Schedule sets forth a list of all Internet domain names registered in the name
of the Company and used by the Company in its business. The Company has, and
after the Effective Time the Surviving Corporation will have, a valid
registration in and to such Internet domain names including, without limitation,
all rights necessary to continue to conduct the Company's business as it is
currently conducted under such names.
4.16.3 To the Company's Knowledge, the Company has not
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of third parties and, to the
Company's Knowledge, the Company has not received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that the Company must
license or refrain from using any Intellectual Property rights of any third
party) except as set forth in Section 4.16.3 of the Company Disclosure Schedule.
To the Knowledge of the Company, no third party is interfering with, infringing
upon, misappropriating, or otherwise coming into conflict with any Intellectual
Property rights of the Company.
4.16.4 Section 4.16.4 of the Company Disclosure Schedule
identifies each patent, trademark and copyright registration which has been
issued to the Company, and each pending application for patent, trademark or
copyright registration which the Company has made with respect to any of its
Intellectual Property, and identifies each material License which the Company
has granted to any third party with respect to any of its Intellectual Property.
The Company has made available to eCom for inspection and duplication correct
and complete copies of all such patents, trademarks, registrations,
applications, and Licenses (as amended to date) and has made available to eCom
correct and complete copies of all other written documentation evidencing
ownership and prosecution (if applicable) of each such item. Section 4.16.4 of
the Company Disclosure Schedule also identifies each trade name or material
unregistered trademark used by the Company in connection with any of its
businesses. Except as set forth in Section 4.16.4 of the Company Disclosure
Schedule, with respect to each item of Intellectual Property disclosed in
Section 4.16.4 of the Company Disclosure Schedule:
4.16.4.1 the Company possesses all right, title, and
interest in and to the item, free and clear of any Security Interest, license,
or other restriction;
4.16.4.2 the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
4.16.4.3 no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to Company's
Knowledge, is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
4.16.4.4 the Company has never agreed to indemnify
any Person for or against any interference, infringement, misappropriation, or
other conflict with respect to such item outside the Ordinary Course of
Business.
4.16.5 Section 4.16 of the Company Disclosure Schedule
identifies each material item of Intellectual Property that any third party owns
and that the Company uses pursuant to a License (other than any off-the-shelf
and other Intellectual Property generally available via shrink wrap or click
wrap agreements). The Company has made available to
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eCom for inspection and duplication correct and complete copies of all such
Licenses (as amended to date). With respect to each item of Intellectual
Property identified in Section 4.16 of the Company Disclosure Schedule:
4.16.5.1 the License covering the item is legal,
valid, binding, enforceable, and in full force and effect;
4.16.5.2 except as set forth in Section 4.16.5.2 of
the Company Disclosure Schedule, such License will continue to be legal, valid,
binding, enforceable, and in full force and effect following the Closing;
4.16.5.3 neither the Company nor, to the Company's
Knowledge, any other party to the License is in material breach or default, and
to the Company's Knowledge, no event has occurred which with notice or lapse of
time would constitute a material breach or default or permit termination,
modification, or acceleration thereunder;
4.16.5.4 neither the Company nor, to the Company's
Knowledge, any other party to the License has repudiated any provision thereof;
4.16.5.5 to the Company's Knowledge, with respect to
each sublicense, the representations and warranties set forth in subsections
4.16.5.1 through 4.16.5.4 above are true and correct with respect to the
underlying license;
4.16.5.6 to the Company's Knowledge, the underlying
item of Intellectual Property is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
4.16.5.7 no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to the
Knowledge of the Company, is threatened which challenges the legality, validity,
or enforceability of the underlying item of Intellectual Property; and
4.16.5.8 the Company has not granted any sublicense
or similar right with respect to the License outside the Ordinary Course of
Business or that would constitute a material breach of any such License.
4.16.6 To the Knowledge of the Company, the Company will not
interfere with, infringe upon, misappropriate, or otherwise come into conflict
with, any Intellectual Property rights of third parties as a result of the
continued operation of its businesses as presently conducted.
4.17 Tangible Assets. The Company owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of its
business as presently conducted. Except as set forth in Section 4.17 of the
Company Disclosure Schedule, each such tangible asset is free from material
defects (patent and latent), has been maintained in accordance with normal
industry practice, is in good operating condition and repair (subject to normal
wear and tear), and is suitable for the purposes for which it presently is used.
4.18 Contracts. Section 4.18 of the Company Disclosure Schedule lists
the following contracts and other agreements to which the Company is a party and
which are currently in force and effect:
4.18.1 any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease payments in
excess of $25,000 per annum;
4.18.2 any agreement (or group of related agreements) for the
purchase or sale
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of raw materials, commodities, supplies, products, or other personal property,
or for the furnishing or receipt of services, the performance of which will
extend over a period of more than one (1) year, result in a material loss to the
Company, or involve consideration in excess of $25,000;
4.18.3 any agreement concerning a partnership or joint
venture;
4.18.4 any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, in excess of $25,000 or
under which it has granted a Security Interest on any of its assets, tangible or
intangible (other than the Loan Agreement);
4.18.5 any agreement concerning confidentiality or
noncompetition (other than any such agreements which are entered into in the
Ordinary Course of Business and which will not have any Material Adverse Effect
with respect to the Company);
4.18.6 any agreement between the Company and any of the
Company's Stockholders or any Company Stockholder's Affiliate;
4.18.7 any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers, and
employees;
4.18.8 any collective bargaining agreement;
4.18.9 any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual compensation
in excess of $25,000 or providing severance benefits;
4.18.10 any agreement under which it has advanced or loaned
any amount which remains outstanding as of the date hereof, to any of its
directors, officers, and employees outside the Ordinary Course of Business;
4.18.11 any agreement under which the consequences of a
default or termination could have a Material Adverse Effect with respect to the
Company;
4.18.12 any agreement pursuant to which any party has any
registration rights; and
4.18.13 any other agreement (or group of related agreements)
the performance of which involves consideration in excess of $50,000.
The Company has made available to eCom for inspection and duplication a correct
and complete copy of each written agreement listed in Section 4.18 of the
Company Disclosure Schedule (as amended to date) and a written summary setting
forth the terms and conditions of each oral agreement referred to in Section
4.18 of the Company Disclosure Schedule. With respect to each such agreement,
except as set forth on Section 4.18 of the Company Disclosure Schedule: (A) the
agreement is legal, valid, binding, enforceable, and in full force and effect;
(B) the agreement will continue to be legal, valid, binding, enforceable, and in
full force and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) the Company, and to the Company's
Knowledge, no other party is in breach or default, and no event has occurred
which with notice or lapse of time would constitute a breach or default, or
permit termination, modification, or acceleration, under the agreement; and (D)
to the Company's Knowledge, no party has repudiated any provision of the
agreement.
4.19 Notes and Accounts Receivable. All notes and accounts receivable
of the
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Company are reflected properly on their books and records, are valid
receivables subject to no setoffs or counterclaims, are current and collectible,
and will be collected in accordance with their terms at their recorded amounts,
subject only to the reserve for bad debts set forth on the face of the Company
Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company.
4.20 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Company.
4.21 Insurance. Attached as Section 4.21 of the Company Disclosure
Schedule is each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) to which the Company is a party, a named insured, or otherwise the
beneficiary of coverage. With respect to each such insurance policy: (A) the
policy is legal, valid, binding, enforceable, and in full force and effect; (B)
the policy will continue to be legal, valid, binding, enforceable, and in full
force and effect on substantially similar terms following the consummation of
the transactions contemplated hereby, after notice to the insurer; (C) neither
the Company nor to the Company's Knowledge, any other party to the policy is in
breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; and (D) to the Company's
Knowledge, no party to the policy has repudiated any provision thereof. The
Company has been covered at all times by insurance in scope and amount customary
and reasonable for the businesses in which it has engaged.
4.22 Litigation. Section 4.22 of the Company Disclosure Schedule sets
forth each instance in which the Company (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party or, to
the Company's Knowledge, is threatened to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. Except as specifically described in
Section 4.22 of the Company Disclosure Schedule, none of the actions, suits,
proceedings, hearings or investigations set forth in Section 4.22 of the Company
Disclosure Schedule could result in any material adverse change in the business,
financial condition, operations, results of operations, or future prospects of
the Company. The Company has no reason to believe that any such similar action,
suit, proceeding, hearing, or investigation may be brought or threatened against
the Company.
4.23 Product Warranty. Each product manufactured, sold, leased, or
delivered by the Company has been in conformity in all material respects with
all applicable contractual commitments and all express and implied warranties
and, to the Company's Knowledge, the Company does not have any material
Liability (and, to the Company's Knowledge, there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any material Liability) for
replacement or repair thereof or other damages in connection therewith, subject
only to the reserve for product warranty claims set forth on the face of the
Company Most Recent Balance Sheet (rather than in any notes thereto) as adjusted
for the passage of time through the Closing Date in accordance with the past
custom and practice of the Company. No product manufactured, sold, leased, or
delivered by the Company is subject to any guaranty, warranty, or other
indemnity beyond the applicable standard terms and conditions of sale or lease.
4.24 Product Liability. To the Company's Knowledge, the Company does
not have
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any Liability (and there is no Basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim, or demand
against any of them giving rise to any Liability) arising out of any injury to
individuals or property as a result of the ownership, possession, or use of any
product manufactured, sold, leased, or delivered by the Company.
4.25 Employees. To the Company's Knowledge, none of the Company's
officers, key employees, or group of employees has any plans to terminate
employment with the Company. The Company is not a party to or bound by any
collective bargaining agreement, nor has it experienced any strikes, grievances,
claims of unfair labor practices, or other collective bargaining disputes. The
Company has not committed any unfair labor practices. The Company does not know
of any organizational effort presently being made or threatened by or on behalf
of any labor union with respect to employees of the Company.
4.26 Employee Benefits.
4.26.1 Definitions. Capitalized terms used but not defined in
this Section 4.26 or Section 1 hereof have the meanings given to them in Section
3.25.1 hereof.
4.26.2 Section 4.26 of the Company Disclosure Schedule lists
each Employee Benefit Plan that the Company maintains or to which the Company
contributes or has any obligation to contribute.
4.26.2.1 All required reports and descriptions
(including Form 5500 Annual Reports, summary annual reports, and summary plan
descriptions) have been timely filed and distributed appropriately with respect
to the Employee Welfare Benefit Plan of the Company (hereinafter referred to
as the "Company Group Health Medical Plan"). The requirements of COBRA have
been met with respect to the Company Group Health Medical Plan.
4.26.2.2 All premiums or other payments for all
periods ending on or before the Closing Date have been paid with respect to
the Company Group Health Medical Plan.
4.26.2.3 The Company has made available to eCom for
inspection and duplication correct and complete copies of the plan documents
and summary plan descriptions, the most recent Form 5500 Annual Report, and
all related insurance contracts, and other agreements which implement the
Company Group Health Medical Plan.
4.26.3 The Company does not maintain or ever has maintained,
or contribute or ever has contributed, or ever has been required to contribute
to any Employee Welfare Benefit Plan providing medical, health, or life
insurance or other welfare-type benefits for current or future retired or
terminated employees, their spouses, or their dependents, other than in
accordance with Section 4980B of the Code.
4.27 Guaranties. Except as set forth in Section 4.27 of the Company
Disclosure Schedule, the Company is not a guarantor or otherwise liable for any
Liability or obligation (including indebtedness) of any other Person. Also set
forth in Section 4.27 of the Company Disclosure Schedule is a list of personal
guaranties of any officer or director of the Company with respect to underlying
obligations of the Company.
4.28 Environmental, Health, and Safety Matters.
4.28.1 To the Company's Knowledge, the Company has complied
and is in compliance in all material respects with all Environmental, Health,
and Safety Requirements.
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4.28.2 Without limiting the generality of the foregoing, to
the Company's Knowledge, the Company has obtained and complied with, and is in
compliance with, all material permits, licenses and other authorizations that
are required pursuant to Environmental, Health, and Safety Requirements for the
occupation of its facilities and the operation of its business; a list of all
such permits, licenses and other authorizations is set forth in Section 4.28.2
of the Company Disclosure Schedule.
4.28.3 The Company has not received any written or, to the
Company's Knowledge, oral notice, report or other information regarding any
actual or alleged violation of Environmental, Health, and Safety Requirements,
or any liabilities or potential liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise), including any investigatory, remedial or
corrective obligations, relating to any of them or its facilities arising under
Environmental, Health, and Safety Requirements.
4.28.4 To the Company's Knowledge, none of the following
exists at any property or facility owned or operated by the Company: (1)
underground storage tanks, (2) asbestos-containing material in any form or
condition, (3) materials or equipment containing polychlorinated biphenyls, or
(4) landfills, surface impoundments, or disposal areas.
4.28.5 To the Company's Knowledge, the Company has not
treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any substance, including without limitation
any hazardous substance, or owned or operated any property or facility (and no
such property or facility is contaminated by any such substance) in a manner
that has given or would give rise to any material liability under any
Environmental, Health, and Safety Requirement.
4.28.6 To the Company's Knowledge, neither this Agreement nor
the consummation of the transaction that is the subject of this Agreement will
result in any obligations for site investigation or cleanup, or notification to
or consent of government agencies or third parties, pursuant to any of the
so-called "transaction-triggered" or "responsible property transfer"
Environmental, Health, and Safety Requirements.
4.28.7 To the Company's Knowledge, the Company has not, either
expressly or by operation of law, assumed or undertaken any material liability,
including without limitation any material obligation for corrective or remedial
action, of any other Person relating to Environmental, Health, and Safety
Requirements.
4.28.8 To the Company's Knowledge, no facts, events or
conditions relating to the past or present facilities, properties or operations
of the Company will prevent, hinder or limit continued compliance in any
material respect with Environmental, Health, and Safety Requirements, give rise
to any material investigatory, remedial or corrective obligations pursuant to
Environmental, Health, and Safety Requirements, or give rise to any other
material liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise) pursuant to Environmental, Health, and Safety Requirements.
4.29 Year 2000. Except as set forth in Section 4.29 of the Company
Disclosure Schedule, none of the computer software, computer firmware, computer
hardware (whether general or special purpose) or other similar or related items
of automated, computerized or software systems that are owned or controlled by
the Company in the conduct of its business, and, to the Company's knowledge,
none of the products and services sold, licensed, rendered or otherwise provided
by the Company in the conduct of its business will experience a Y2K Problem. The
Company has communicated with its suppliers and customers to determine if any of
such suppliers or customers expect to experience any Y2K Problems which may
affect
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the Company, and the Company is not aware of any such Y2K Problems with respect
to such suppliers or customers.
Except as set forth in Section 4.29 of the Company Disclosure Schedule,
the Company has not made any warranties regarding the ability of any product or
service sold, licensed, rendered, or otherwise provided by the Company in the
conduct of its business to operate without malfunction, to operate without
ceasing to function, to generate correct data or to produce correct results when
processing, providing or receiving (i) date-related data from, into and between
the twentieth and twenty-first centuries and (ii) date-related data in
connection with any valid date in the twentieth and twenty-first centuries.
4.30 Fairness Opinion. The Company's Board of Directors will receive a
written opinion from an investment bank reasonably acceptable to the Parties,
dated as of the date of the Company Proxy Materials, to the effect that the
Merger is fair to the Company's shareholders, and will deliver to eCom a copy of
such opinion.
4.31 Certain Business Relationships With the Company. Except as set
forth in Section 4.31 of the Company Disclosure Schedule, none of the Company
Stockholders or any Affiliate of any Company Stockholder has been involved in
any business arrangement or relationship with the Company within the past twelve
(12) months (other than the purchase and ownership of any shares of capital
stock of the Company by a Company Stockholder) and none of the Company
Stockholders or any Affiliate of any Company Stockholder owns any asset,
tangible or intangible, which is used in the business of the Company.
4.32 Takeover Statutes. No takeover statute applicable to the Company
would restrict or adversely affect the ability of the Parties to consummate the
Merger. The Company has not adopted any shareholder rights plan or similar
"poison pill" arrangement, provision or understanding.
4.33 Disclosure. The representations and warranties contained in this
Section 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading.
5 Covenants. The Parties agree as follows with respect to the period from
and after the execution of this Agreement.
5.1 General. Each of the Parties will use its reasonable best efforts
to take all action and to do all things necessary, proper, or advisable in order
to consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 6 below).
5.2 Certain Actions by the Company. The Company shall, promptly after
the date hereof, use its best efforts to cause the following to become effective
immediately prior to the Merger:
5.2.1 the incorporation of a wholly-owned subsidiary of the
Company within the State of Delaware ("Newco") and the merger of the Company
into Newco and/or such other actions as may be necessary under applicable law to
cause the Company to be reincorporated in the State of Delaware, to the extent
such reincorporation may be accomplished immediately prior to the Merger under
applicable law, and upon such reincorporation, the qualification of Newco to do
business in the States of New York and New Jersey (and it is agreed that any
representations, warranties, covenants and agreements of and references to the
Company or the Surviving Corporation contained herein shall be deemed to be
applicable to and to refer to
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Newco);
5.2.2 the amendment of the bylaws of the Company in a manner
which is acceptable to eCom and which is not inconsistent with the terms and
provisions of this Agreement;
5.2.3 the receipt by the Company of the consent of all of the
holders of Existing Preferred Stock (the "Existing Company Preferred Holders")
to the conversion of all of the outstanding shares of Existing Preferred Stock
into shares of Company Common Stock (or shares of common stock of Newco) on
terms and conditions acceptable to eCom, and the conversion of such Existing
Preferred Stock in accordance with such terms and conditions (provided that if
any of the Existing Company Preferred Holders do not consent to such conversion,
the Company may terminate this Agreement, without incurring the break-up fee set
forth in Section 8.3 below, unless eCom waives the covenants contained in this
Section 5.2.3 with respect to such holder); and
5.2.4 the authorization and designation of additional series
of Company Preferred Stock which, to the maximum extent possible, shall have the
same terms as the eCom Preferred Stock (such new series of Company Preferred
Stock being the Company Preferred Stock to be delivered to the holders of the
eCom Preferred Stock in exchange therefor, in accordance with this Agreement).
5.3 Notices and Consents. Each Party will give any notices to third
parties, and will use its reasonable best efforts to obtain any third party
consents, that the other Party may reasonably request in connection with the
matters contemplated hereby and/or which are required for the consummation of
the Merger.
5.4 Regulatory Matters and Government Approvals. Each of the Parties
will give any notices to, make any filings with, and use its best efforts to
obtain any authorizations, consents, and approvals of governments and
governmental agencies required of such Party in connection with the transactions
contemplated hereby.
5.5 Company Shareholder Approval. The Company shall, as promptly as
practicable after the execution and delivery of this Agreement, take all action
necessary in accordance with the NJBCA, the Delaware General Corporation Law and
its certificate of incorporation and bylaws to obtain the Requisite Company
Stockholder Approval. The Company shall consult with eCom regarding the date of
any meeting of Company Stockholders in connection with the Requisite Company
Stockholder Approval and shall not postpone or adjourn the date for the
Requisite Company Stockholders Approval, except as reasonably required to obtain
the Requisite Company Stockholders Approval. The Company shall use its best
efforts to solicit from shareholders of the Company proxies or written consent,
as the case may be, in favor of the Merger and shall take all other action
necessary or advisable to secure the vote or consent of shareholders required to
effect the Merger. The Board of Directors of the Company shall communicate to
the Company Stockholders its affirmative recommendation in favor of the adoption
of this Agreement and the approval of the Merger; provided, however, that no
director or officer of the Company shall be required to violate any fiduciary
duty or other requirement imposed by law in connection therewith.
5.6 eCom Shareholder Approval. eCom shall, as promptly as practicable
after the execution and delivery of this Agreement, take all action necessary in
accordance with the Delaware General Corporation Law and its certificate of
incorporation and bylaws to obtain the
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Requisite eCom Stockholder Approval. eCom shall consult with the Company
regarding the date of any meeting of eCom Stockholders in connection with the
Requisite eCom Stockholders Approval and use all reasonable efforts and shall
not postpone or adjourn the date for the Requisite eCom Stockholder Approval,
except as reasonably necessary to obtain the Requisite eCom Stockholder
Approval. eCom shall use its best efforts to solicit from its stockholders
proxies or written consents in favor of the Merger and shall take all other
action necessary or advisable to secure the vote or consent of its stockholders
required to effect the Merger. The Board of Directors of eCom shall communicate
to the eCom Stockholders its affirmative recommendation in favor of the adoption
of this Agreement and the approval of the Merger; provided, however, that no
director or officer of eCom shall be required to violate any fiduciary duty or
other requirement imposed by law in connection therewith.
5.7 Operation of the Parties. Neither Party shall engage in any
practice, take any action, or enter into any transaction outside the Ordinary
Course of Business, without the prior written consent of the other Party, except
as may be required pursuant to the terms of the Loan Agreement. Without limiting
the generality of the foregoing, except in the Ordinary Course of Business:
5.7.1 neither Party shall authorize or effect any change in
its certificate of incorporation or bylaws;
5.7.2 neither Party shall grant any options, warrants, or
other rights to purchase or obtain any of its capital stock or issue, sell, or
otherwise dispose of any of its capital stock (except (i) upon the conversion or
exercise of options, warrants, and other rights currently outstanding, (ii)
issuances by the Company to employees and consultants that do not cause the
number of shares of Company Common Stock outstanding (on a fully-diluted basis)
to exceed 5,400,000 shares on the Closing Date and (iii) any securities issued
by eCom in connection with the Qualified Private Placement);
5.7.3 neither Party shall declare, set aside, or pay any
dividend or distribution with respect to its capital stock (whether in cash or
in kind), or redeem, repurchase, or otherwise acquire any of its capital stock;
5.7.4 neither Party shall issue any note, bond, or other debt
security or create, incur, assume, or guarantee any indebtedness for borrowed
money or any other liability;
5.7.5 neither Party shall grant or agree to grant any Security
Interest upon any of its assets;
5.7.6 neither Party shall make any capital investment in, make
any loan to, or acquire the securities or assets of any other Person;
5.7.7 neither Party shall transfer any of its assets;
5.7.8 neither Party shall make any change in employment terms
for any of its directors, officers, and employees or, whether in the Ordinary
Course of Business or not, enter into any transactions with any of its
Affiliates, officers, directors or shareholders; and
5.7.9 neither Party will not commit to any of the foregoing.
Notwithstanding the foregoing, the Parties agree that any action taken
by eCom which is materially consistent with the description of the anticipated
use of proceeds by eCom and the description of eCom's strategy as set forth in
the Private Placement Memorandum shall be deemed to be in the Ordinary Course of
Business of eCom, and eCom shall have the right to
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take such other actions which are outside the Ordinary Course of Business upon
the consent of the Company, provided that such consent shall not be unreasonably
withheld.
5.8 Full Access. Each of the Parties will (i) afford to the other Party
and its officers, directors, employees, accountants, consultants, legal counsel,
agents and other representatives (collectively, the "Representatives") full
access at reasonable times upon reasonable prior notice to the officers,
employees, agents, properties, offices and other facilities of such Party and to
their books and records and (ii) furnish promptly to the other Party and its
Representatives such information concerning the business, properties, contracts,
records and personnel of such Party (including financial, operating and other
data and information) as may be reasonably requested, from time to time, by or
on behalf of the other Party. No investigation by any Party hereto shall affect
any representation or warranty in this Agreement of any Party hereto or any
condition to the obligations of the Parties hereto.
5.9 Confidentiality. All Confidential Information obtained by any Party
shall be held in strict confidence and neither Party will use any of the
Confidential Information except in connection with this Agreement, and, if this
Agreement is terminated for any reason whatsoever, both Parties agree to return
to the respective Party all tangible embodiments (and all copies) thereof which
are in its possession and shall maintain the confidentiality of such information
for not less than two (2) years from the date of such termination. Except as and
to the extent required by law (including the Securities Act and the Securities
Exchange Act), no Party hereto will disclose to a third party (other than to
other Representatives of the Company or eCom who need to know such information
for purposes of evaluating the Merger) any information regarding the existence
of this Agreement, the terms of the Merger, or the existence or status of
negotiations with respect thereto or any other Confidential Information without
the prior consent of the other Party, except to the extent that the use of such
information is necessary in making any filing or obtaining any consent or
approval required for the consummation of the Merger or the furnishing or use of
such information is required by or necessary in connection with legal
proceedings. In the event a party is requested or required to disclose any of
the Confidential Information except as permitted above, such party will provide
the other with prompt written notice of any such request or requirement, so that
the other Party may seek a protective order or other appropriate remedy. If, in
the absence of a protective order or other remedy, a party is nonetheless
legally compelled to disclose Confidential Information, such party may, without
liability hereunder, disclose that portion of the Confidential Information which
is legally required to be disclosed, provided that such party exercises
reasonable efforts to preserve the confidentiality of the Confidential
Information, including, without limitation, by cooperating with the other party
to obtain an appropriate protective order or other reliable assurance that
confidential treatment will be accorded the Confidential Information. Upon the
written request of the disclosing party, the non-disclosing party will promptly
return to the disclosing party or destroy any Confidential Information in its
possession and certify in writing to the disclosing party that it has done so.
5.10 Employee Solicitation. From the date hereof through and including
the later of (i) the Effective Time or (ii) the date which is nine months from
the date of the termination of this Agreement, neither Party shall, directly or
indirectly, solicit, hire or otherwise retain as an employee or independent
contractor, any full-time employee of the other Party.
5.11 Notice of Developments. Each Party will give prompt written notice
to the other of any material adverse development causing a breach of any of its
own representations and warranties in Section 3 and Section 4 above. No
disclosure by any Party pursuant to this
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Section 5.11, however, shall be deemed to amend or supplement the eCom
Disclosure Schedule or the Company Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant, in any such case,
where the matter disclosed (individually or combined with any other matter)
could reasonably constitute or would be reasonably likely to result in a
Material Adverse Effect with respect to either Party.
5.12 Exclusivity. In order to induce eCom to proceed with the Merger,
the Company shall not (nor shall they permit any of the Company's officers,
directors, agents, or affiliates to) directly or indirectly solicit, encourage
(including by way of providing any nonpublic information concerning the Company
to any Person), initiate or participate in any negotiations or discussions or
otherwise cooperate with in any way or provide information to any corporation,
partnership, person or other entity, or enter into (or authorize) any agreement
or agreement in principal, or announce any intention to do any of the foregoing,
with respect to any expression of interest, offer or proposal to acquire (i) all
or a substantial part of the Company's business, or (ii) any of its capital
stock, whether by stock purchase, merger, consolidation, purchase of assets,
tender offer or otherwise except in the exercise by the Board of Directors of
its fiduciary obligation to its shareholders with respect to any unsolicited
offers received by the Company. The Company acknowledges that if the Company
were to breach or cause a breach of this provision, eCom would suffer damages
that would be difficult to ascertain and that, in the event of such breach, eCom
shall be entitled to an injunction restraining such breach and the Company shall
be liable to eCom for any reasonable attorney's fees incurred in connection with
obtaining such injunction. Any such equitable relief shall be in addition to any
other relief available to eCom. The Company shall immediately notify eCom if any
Person makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing, and inform eCom of the substance of any subsequent discussions
between the Company and any other third party as to any such proposal, offer,
inquiry or contact.
5.13 Insurance and Indemnification.
5.13.1 The Surviving Corporation will provide each individual
who served as a director or officer of eCom at any time prior to the Effective
Time with liability insurance for a period of forty-eight (48) months after the
Effective Time no less favorable in coverage and amount than any applicable
insurance in effect for eCom immediately prior to the Effective Time; provided,
however, that eCom may reduce the coverage and amount of liability insurance to
the extent the cost of liability insurance having the full coverage and amount
would exceed $25,000 per annum.
5.13.2 The Company, as the Surviving Corporation in the
Merger, will observe any indemnification provisions now existing in the
certificate of incorporation or bylaws of eCom for the benefit of any individual
who served as a director or officer of eCom at any time prior to the Effective
Time.
5.13.3 The Company will indemnify each individual who served
as a director or officer of eCom at any time prior to the Effective Time from
and against any and all actions, suits, proceedings, hearings, investigations,
charges, complaints, claims, demands, injunctions, judgments, orders, decrees,
rulings, damages, dues, penalties, fines, costs, amounts paid in settlement,
liabilities, obligations, taxes, liens, losses, expenses, and fees, including
all court costs and reasonable attorneys' fees and expenses, resulting from,
arising out of, relating to, in the nature of, or caused by this Agreement or
any of the transactions contemplated herein (except for any Liability incurred
as a result of fraud committed by such individual).
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5.13.4 The Surviving Corporation shall obtain tail coverage at
least as favorable as the coverage contemplated by Section 5.13.1 above with
respect to each person who has resigned from such person's position as director
or officer of the Company in connection with the Merger, covering acts by such
former director or officer prior to the Effective Time, with such coverage being
in addition to any existing indemnifications arrangements maintained for the
benefit of such former directors or officers.
5.13.5 The Surviving Corporation shall cause any personal
guaranty listed on Schedule 4.27 of the Company Disclosure Schedule by any
officer or director of the Company to be terminated, or if the Surviving
Corporation cannot cause such guaranty to be terminated, the Surviving
Corporation shall indemnify such officer or director with respect to such
guaranty.
5.14 Election of Director. For a period of two (2) years from the
Effective Time, the Surviving Corporation, acting through its Board of Directors
and in accordance with its Certificate of Incorporation, By-Laws and applicable
law, shall recommend in its proxy statement for each annual or special meeting
of stockholders at which directors shall be elected, and shall nominate and
recommend at each such subsequent stockholders' meeting, as part of the
management's or the Board of Director's slate for election to the Surviving
Corporation's Board of Directors, Steven L. Vanechanos, Jr., as a member of the
Board of Directors (unless such recommendation, nomination or election is not
necessary because his term as a director will otherwise continue subsequent to
such stockholders' meeting). Consistent with the foregoing, all shares for which
the Surviving Corporation's management or Board of Directors holds proxies
(including undesignated proxies) shall be voted in favor of the election of
Steven L. Vanechanos, Jr., as described above.
6 Conditions to Close.
6.1 Conditions of eCom. The obligation of eCom to consummate the
transactions to be performed by it in connection with the Closing is subject to
satisfaction of the following conditions:
6.1.1 this Agreement and the Merger shall have received the
Requisite Company Stockholder Approval, Steven L. Vanechanos, Jr. and Steven L.
Vanechanos, Sr. shall have voted all of their shares of Company Common Stock
(which is not less than an aggregate of 549,491shares) in favor of this
Agreement and the Merger and the number of Dissenting Shares shall not exceed
10% of the number of outstanding Company Shares;
6.1.2 the Company shall have obtained all of the third party
consents necessary for the consummation of the Merger;
6.1.3 each of the matters set forth in Section 5.2 hereof
shall have been completed as described therein;
6.1.4 the representations and warranties set forth in Section
4 above shall be true and correct in all material respects at and as of the
Closing Date (except with respect to matters arising as contemplated pursuant to
this Agreement or as the Parties may have otherwise agreed); provided, however,
that the Company may supplement the Company Disclosure Schedule at or prior to
the Closing for any matters which would not have a Material Adverse Effect
either singularly or, together with such other immaterial matters presented by
the Company as supplements to the Company Disclosure Schedule, in the aggregate;
6.1.5 the Company shall have performed and complied with all
of its covenants hereunder in all material respects through the Closing;
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6.1.6 no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, or (C) affect adversely the right of the Surviving
Corporation to own the assets or operate the businesses of the Company;
6.1.7 this Agreement and the Merger shall have received the
Requisite eCom Stockholder Approval and the Certificates of Merger shall have
been filed;
6.1.8 the Company shall have delivered to eCom a certificate
to the effect that each of the conditions specified above in Sections 6.1.1 -
6.1.7 are satisfied in all respects;
6.1.9 eCom shall have received from counsel to the Company an
opinion in form and substance reasonably satisfactory to eCom, addressed to
eCom, and dated as of the Closing Date;
6.1.10 subject to the provisions of Section 2.5.4 above, eCom
shall have received the resignations, effective as of the Closing, of each
director and officer of the Company other than those whom eCom shall have
specified in writing at least five (5) business days prior to the Closing;
6.1.11 each of the directors, officers, and principal
shareholders of the Company shall have entered into a Lock-Up Agreement pursuant
to and in accordance with Section 7.2 hereof;
6.1.12 Steven L. Vanechanos, Jr. shall have executed and
delivered to the Parties an indemnification agreement containing the terms set
forth in the Letter Agreement and such other terms as may be reasonably
acceptable to the Parties;
6.1.13 The Mask Group and Kenneth Konikowski shall have
executed and delivered to the Parties an agreement providing that: (i) The Mask
Group and Kenneth Konikowski shall indemnify the Surviving Corporation for (A)
any liabilities or other damages incurred by the Surviving Corporation in
connection with the indebtedness or mortgage relating to the premises used by
the Company and (B) any litigation or disputes incurred in connection with the
purchase agreement concerning Software Associates to which the Company and
Kenneth Konikowski are parties, (ii) Kenneth Konikowski shall deposit 40,000
shares of Company Common Stock in escrow to secure his obligations under clause
(i)(A) above, which shall be held until the date on which the Surviving
Corporation shall have no further liabilities in connection with such
indebtedness or mortgage, (iii) the Surviving Corporation will reimburse Kenneth
Konikowski for expenses or other costs incurred in connection with the sale of
such premises or refinancing of such indebtedness whereby the Company shall no
longer have any liabilities in connection therewith, in an amount not to exceed
$10,000; provided such sale or refinancing occurs within eighteen (18) months of
the Closing Date and (iv) such other terms as may be reasonably acceptable to
the Parties, it being understood that the foregoing supersedes Mr. Konikowski's
indemnification obligations under the purchase agreement referred to in clause
(i) (B) above; and
6.1.14 all actions to be taken by the Company in connection
with consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to
eCom.
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eCom may waive any condition specified in this Section 6.1 if it
executes a writing so stating at or prior to the Closing.
6.2 Conditions of the Company. The obligation of the Company to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
6.2.1 this Agreement and the Merger shall have received the
Requisite eCom Stockholder Approval and the number of Dissenting Shares shall
not exceed 10% of the then outstanding eCom Shares;
6.2.2 the representations and warranties set forth in Section
3 above shall be true and correct in all material respects at and as of the
Closing Date (except with respect to matters arising as contemplated pursuant to
this Agreement or as the Parties may have otherwise agreed); provided, however,
that eCom may supplement the eCom Disclosure Schedule at or prior to the Closing
for any matters which would not have a Material Adverse Effect either singularly
or, together with such other immaterial matters presented by eCom as supplements
to the eCom Disclosure Schedule, in the aggregate
6.2.3 eCom shall have completed the Qualified Private
Placement;
6.2.4 eCom shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
6.2.5 no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, or (C) affect adversely the right of the Company to own
the former assets, and to operate the former businesses of eCom;
6.2.6 each of Peter Fiorillo, Joseph Bentley and Kevin Hayes
shall have agreed to waive the terms of any agreement between eCom and such
Person with respect to a "change of control" of eCom;
6.2.7 there shall be in effect, with respect to the Surviving
Corporation, officers and directors liability insurance in the amount of
$2,000,000 (or such lesser amount as may be acceptable to the Company);
6.2.8 this Agreement and the Merger shall have received the
Requisite Company Stockholder Approval and the Certificates of Merger shall have
been filed;
6.2.9 Steven L. Vanechanos, Jr. shall have been elected or
appointed as a member of the Board of Directors of the Surviving Corporation,
effective as of the Effective Time;
6.2.10 all material Internet domain names, trademarks and
other items of Intellectual Property of eCom shall have been properly assigned
to the Surviving Corporation;
6.2.11 eCom shall have delivered to the Company a certificate
to the effect that each of the conditions specified above in Sections 6.2.1 -
6.2.10 are satisfied in all respects;
6.2.12 the Company and Steven L. Vanechanos, Jr. shall have
entered into an employment agreement containing the terms set forth in the
Letter Agreement (and such other terms as may be reasonably acceptable to the
Parties);
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6.2.13 the Company shall have received from counsel to eCom an
opinion in form and substance reasonably satisfactory to the Company, addressed
to the Company, and dated as of the Closing Date; and
6.2.14 all actions to be taken by eCom in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Company.
The Company may waive any condition specified in this Section 6.2 if it
executes a writing so stating at or prior to the Closing.
7 Additional Agreements.
7.1 Proxy Statement. eCom agrees to provide promptly to the Company
such information concerning its business and financial statements and affairs
as, in the reasonable judgment of eCom or its counsel, may be required or
appropriate for inclusion in the Company Proxy Material, or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate with the
Company's counsel and auditors in the preparation of the same. eCom hereby
agrees that such information shall not contain any untrue statement of a
material fact which is untrue as of the date of such Company Proxy Material, or
omit to state any material fact necessary in order to make the statements and
information contained therein not misleading as of the date of such Company
Proxy Material. The Company will promptly advise eCom, and eCom will promptly
advise the Company, in writing if at any time prior to the Effective Time either
the Company or eCom shall obtain knowledge of any facts that might make it
necessary or appropriate to amend or supplement the Company Proxy Material in
order to make the statements contained or incorporated by reference therein not
misleading or to comply with applicable law. The Company Proxy Material shall
include a recommendation of the board of directors of each of eCom and the
Company that eCom stockholders or the Company shareholders, as the case may be,
approve the proposal submitted to them.
7.2 Lock-Up Agreements. Each officer, director and principal
shareholder of the Company who owns shares of the Company's capital stock which
have not been registered under the Securities Act will enter into an agreement,
satisfactory to eCom, to the effect that such individual or entity will not
sell, assign or transfer any shares of the Company's capital stock for a period,
the longer of (i) 12 months from the Closing, or (ii) up to 12 months from the
closing of a Qualified Offering by the Surviving Corporation which occurs within
the initial 12 month period referred to in (i) above, as may be required by the
managing underwriter or placement agent of the Qualified Offering. In addition,
any Company Stockholder who owns or controls more than 10% of the outstanding
shares of capital stock of the Company (or securities which are convertible into
shares of capital stock of the Company) which have been registered under the
Securities Act will enter into agreements satisfactory to eCom regarding
restrictions on such holder's right to sell such shares. For this purposes of
this Agreement, the term "Lock Up Agreement" shall mean any agreement regarding
a restriction on the right to sell the Company's capital stock, entered into
pursuant to this Section 7.2. The Lock Up Agreements shall be substantially
similar to, and shall not contain any material term which is more restrictive
than the terms contained in, the agreements to which the investors in the
Qualified Private Placement are parties.
8 Termination.
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8.1 Termination of Agreement. Either of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether before
or after stockholder approval) as provided below:
8.1.1 the Parties may terminate this Agreement by mutual
written consent at any time prior to the Effective Time;
8.1.2 the Company may terminate this Agreement by giving
written notice to eCom at any time prior to the Effective Time (A) in the event
eCom has breached any material representation, warranty, or covenant contained
in this Agreement in any material respect, the Company has notified eCom of the
breach, and the breach has continued without cure for a period of thirty (30)
days after the notice of breach or (B) if the Closing shall not have occurred on
or before June 30, 2000, by reason of the failure of any condition precedent
under Section 6.2 hereof (unless the failure results primarily from the Company
breaching any representation, warranty, or covenant contained in this
Agreement);
8.1.3 eCom may terminate this Agreement by giving written
notice to the Company at any time prior to the Effective Time (A) in the event
the Company has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, eCom has notified the
Company of the breach, and the breach has continued without cure for a period of
thirty (30) days after the notice of breach or (B) if the Closing shall not have
occurred on or before June 30, 2000, by reason of the failure of any condition
precedent under Section 6.1 hereof (unless the failure results primarily from
eCom breaching any representation, warranty, or covenant contained in this
Agreement); or
8.1.4 eCom may terminate this Agreement by giving written
notice to the Company at any time prior to the Effective Time in the event
eCom's board of directors concludes in good faith that termination would be in
the best interests of eCom and the eCom Stockholders.
8.2 Effect of Termination. If any Party terminates this Agreement
pursuant to section 8.1 above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach and except as set forth in
Section 8.3 hereof)); provided, however, that the confidentiality provisions
contained herein shall survive any such termination for a period of two (2)
years following such termination and provided, further, that the Party
terminating this Agreement shall be liable to the other Party for the
Transaction Costs incurred by the non-terminating Party, and such Transaction
Costs shall be payable upon demand therefor (except that in the event the
Parties mutually agree to terminate this Agreement, then each Party shall be
responsible for their own respective Transaction Costs). For the purposes of
this Section 8.2, "Transaction Costs" means any and all reasonable costs and
expenses, including, without limitation, reasonable fees and disbursements of
consultants, financial advisors, counsel, accountants and investment bankers,
incurred in connection with the transactions contemplated hereby.
8.3 Break-up Fee. If the Company either withdraws from or terminates
this Agreement (other than in accordance with Sections 8.1.1 or 8.1.2 above)
then, within 30 days of such event, the Company will pay to eCom the sum of five
hundred thousand dollars ($500,000) as liquidated damages, provided, however, no
such liquidated damages shall be due and payable in the event eCom does not
proceed to consummate the Merger solely as a result of the failure of the
Existing Company Preferred Holders to agree to convert their Existing Preferred
Stock to Company Common Stock as of the Closing of the Merger and/or enter into
Lock Up Agreements; and provided further, if prior to the Closing, the Company
receives an
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unsolicited offer to participate in a transaction which would result in a
"change of control" of the Company or a sale of all or a material portion of the
assets of the Company, and the Company subsequently accepts such offer, the
Company will pay eCom the sum of five hundred thousand dollars ($500,000) as
liquidated damages within 30 days of the acceptance of the offer. In the event
the liquidated damages described in the previous sentence are not paid within 30
days of the due date, the $500,000 due to eCom will be convertible, at the
discretion of eCom, into seven hundred fifty thousand (750,000) shares of
Company Common Stock, which shall be issuable immediately upon written notice to
the Company to that effect.
9 Miscellaneous.
9.1 Survival of Representations and Warranties. Each representation and
warranty contained in this Agreement shall survive the Closing (even if the
damaged Party knew or had reason to know of any misrepresentation or breach of
warranty at the time of Closing) for a period until the conclusion of the first
annual audit of the Surviving Corporation following the Merger. Notwithstanding
the foregoing, if proper and timely notice of a breach or inaccuracy of any such
representation or warranty shall have been given in connection with any Party's
rights to indemnification or other damages relating thereto, then such
representation or warranty shall continue to survive until the related claim for
indemnification or damages has been satisfied or otherwise resolved, but not for
purposes of any new claim with respect to such representation or warranty.
9.2 Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other Party, except as
may be required by law (including, without limitation, any filings required by
the Securities Act or the Securities Exchange Act).
9.3 No Third-Party Beneficiaries. Except to the extent required by the
terms of Section 5.13 hereof, this Agreement shall not confer any rights or
remedies upon any Person other than the Parties and their respective successors
and permitted assigns.
9.4 Entire Agreement. This Agreement (including the documents referred
to herein and entered into pursuant hereto) constitutes the entire agreement
between the Parties relating to the subject matter hereof, and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof, including the Letter Agreement (other than the obligations of Steven L.
Vanechanos, Jr. and Steven Vanechanos, Sr. with respect to voting, as contained
in the Letter Agreement).
9.5 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
9.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
9.7 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
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9.8 Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two (2)
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, or by courier with proof of delivery, and addressed
to the intended recipient as set forth below:
<TABLE>
<S> <C>
IF TO THE COMPANY: COPY TO:
Steven L. Vanechanos, Jr. Sarah Hewitt, Esq.
Chief Executive Officer Brown Raysman Millstein Felder
DynamicWeb Enterprises, Inc. & Steiner LLP
271 Route 46 West 120 West 45th Street
Building F, Suite 209 New York, New York 10036
Fairfield, New Jersey 07004 Facsimile No.: (212) 840-2429
Facsimile No.: (973) 575-9830
IF TO ECOM: COPY TO:
Peter Fiorillo Jack Hughes, Esq.
Chief Executive Officer Moskowitz Altman & Hughes LLP
eB2B Commerce, Inc. 11 East 44th Street
29 West 38th Street Suite 504
New York, New York 10018 New York, New York 10017
Facsimile No.: (212) 868-0910 Facsimile No.: (212) 697-2992
</TABLE>
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
9.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New York without giving effect
to any choice or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of New York.
9.10 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Parties. No waiver by any Party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
9.11 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
9.12 Expenses. Each Party will be responsible for its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby.
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9.13 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance.
9.14 Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
9.15 Specific Performance. Each of the Parties acknowledges and agrees
that the other Party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to the provisions set forth in Section 9.16
below), in addition to any other remedy to which it may be entitled, at law or
in equity.
9.16 Alternate Dispute Resolution
9.16.1 The Parties shall attempt in good faith to resolve any
dispute arising out of or relating to this Agreement promptly by negotiations
among each Party's representatives. Any Party may give the other Party written
notice of any dispute not resolved in the normal course of business. Within
fifteen (15) days after giving notice, the receiving Party shall submit to the
other a written response. The notice and the response shall include: (a) a
statement of each party's position and a summary of arguments supporting that
position; and (b) the name and title of the representative of that party and of
any other person who will accompany the representative. Within thirty (30) days
after delivery of the disputing Party's notice, the representatives of both
parties shall meet at a mutually acceptable time and place, and thereafter as
often as they reasonably deem necessary, to attempt to resolve the dispute. All
reasonable requests for information made by one Party to the other Party will be
honored. All negotiations pursuant to this clause are confidential and shall be
treated as compromise and settlement negotiations for purposes of the Federal
Rules of Evidence and state rules of evidence.
9.16.2 If the dispute has not been resolved within ninety (90)
days of the disputing Party's notice or if the Parties fail to meet within
thirty (30) days, then either Party may immediately initiate arbitration of the
controversy or claim as provided in Section 9.16.3. If any notice by either
Party to arbitrate specifies binding arbitration, and the other Party declines
to submit to binding arbitration, the notifying Party shall be free to proceed
with civil litigation.
9.16.3 Arbitration, if initiated, shall be in accordance with
the then current Rules of the American Arbitration Association. Such arbitration
shall be conducted by three independent and impartial arbitrators reasonably
acceptable to each Party. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. 'SS'1-16 and, if binding, judgment upon the award
rendered by the arbitrator(s) may be entered by any court having jurisdiction
thereof. The place of arbitration shall be New York, New York. The arbitrators
are not empowered to
47
<PAGE>
award damages in excess of compensatory damages and each Party hereby
irrevocably waives any right to recover such noncompensatory damages with
respect to any dispute resolved by arbitration.
9.16.4 In the event of binding arbitration, any claim by
either Party shall be time-barred unless the asserting Party commences an
arbitration proceeding with respect to such claim within one (1) year after the
basis for such claim became known to the asserting party.
9.16.5 In the event of binding arbitration, the procedures
specified in this Section 9.16 shall be the sole and exclusive procedures for
the resolution of disputes between the Parties arising out of or relating to
this Agreement; provided, however, that a Party, without prejudice to the above
procedures, may file a complaint to seek a preliminary injunction or other
provisional judicial relief, if in its sole judgment reasonably exercised such
action is necessary to avoid irreparable damage or to preserve the status quo.
Despite action pursuant to this Section, the Parties will continue to
participate in good faith in the procedures specified in this Section 9.16.
9.16.6 All applicable statutes of limitation and defenses
based upon the passage of time shall be tolled while the procedures specified in
this Section 9.16 are pending. The Parties will take such action, if any,
required to effectuate such tolling.
9.17 Third Party Finders, Facilitators and Consultants. The Parties
hereby agree that a finder's fee will be paid upon Closing of this Agreement to
Commonwealth Associates L.P., as exclusive agent for eCom, for services rendered
in the introduction of the Parties to the transactions contemplated in this
Agreement.
THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK
48
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement and
Plan of Merger on the date first above written.
eB2B Commerce, Inc. DynamicWeb Enterprises, Inc.
By: /s/ Peter Fiorillo By: /s/ Steven L. Vanechanos, Jr.
---------------------------------- ----------------------------------
Peter Fiorillo Steven L. Vanechanos, Jr.
Chief Executive Officer Chief Executive Officer
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<PAGE>
eB2B Commerce, Inc.
29 West 38th Street
New York, New York 10018
November 10, 1999
Steven L. Vanechanos, Jr.
Chief Executive Officer
DynamicWeb Enterprises, Inc.
271 Route 46 West
Building F, Suite 209
Fairfield, NJ 07004
Re: Letter Agreement - Merger of eB2B Commerce, Inc. with
DynamicWeb Enterprises, Inc.
Dear Mr. Vanechanos:
This letter sets forth the terms upon which eB2B Commerce, Inc. ("eCom"),
proposes to merge with and into DynamicWeb Enterprises, Inc. (the "Company").
This binding agreement ("Agreement") describes certain material terms and
conditions of the Transaction. This Agreement may be superseded only by the
"Definitive Agreement" (as defined below).
1 The Transaction. eCom will enter into the Definitive Agreement with the
Company, whereby the shareholders of eCom upon the closing of the merger will
receive capital stock of the Company in exchange for their capital stock in
eCom. The terms of the capital stock exchange are set forth below (the
"Transaction"). The Transaction is contemplated to be a tax-free merger of eCom
with and into the Company in a reorganization pursuant to Section 368 of the
Internal Revenue Code with the Company being the surviving corporation (the
"Surviving Corporation"). The terms of the Transaction to be included in a
definitive agreement are as follows:
1.1 Conversion of Shares. Immediately prior to the closing of the
Transaction, the Company's outstanding capital stock will be comprised of
approximately 4,800,000 shares (but in no event shall there be more than
5,400,000 shares) of common stock (inclusive of the conversion of all
outstanding Series A and Series B Preferred Stock, and assuming the conversion
of all other warrants, options or other convertible instruments). The Company
will issue unregistered shares of its capital stock equivalent to not less than
25 million shares of common stock in exchange for all of the outstanding shares
of capital stock of eCom (including the capital stock issued by eCom in
connection with the private placement of eCom's securities referred to below).
In addition, (i) for each outstanding share of common stock of the Company (or
common stock equivalent) in excess of 4,800,000 shares, the Company shall issue
to eCom stockholders 5.2083 additional shares of its common stock to eCom
stockholders in connection with the Transaction, and (ii) in the event eCom
receives in excess of $15 million in gross proceeds from the private placement
of its securities, for each additional dollar in excess of the $15 million gross
proceeds received by eCom, the Company will issue to eCom stockholders .484 of a
share of its common stock and a warrant to purchase .242 of a share of the
Company's common stock at an exercise price of $2.06 (subject to appropriate
adjustment as may be
<PAGE>
required by (i) above). In furtherance of the foregoing, prior to entering into
the "Definitive Agreement" (as defined below) regarding the Transaction, the
Company will provide eCom with evidence of the agreement of the holders of the
Company's outstanding Series A and Series B Preferred Stock (the "Preferred
Holders") to (i) convert their holdings to the Company's common stock prior to
the closing of the Transaction, and (ii) enter into the Lock-Up Agreement (as
defined below) with the modifications and provisions acceptable to eCom.
1.2 Directors and Officers. The directors and officers of eCom in office
at and as of the date of the closing of the Transaction will remain the
directors and officers of the Surviving Corporation (retaining their respective
positions and terms of office). One additional member of the Board of Directors
of the Surviving Corporation will be designated by the Company.
1.3 Completion of Private Placement. Prior to the closing of the
Transaction, eCom will have received a minimum of $15 million in gross proceeds
in a private placement of its securities.
1.4 Lock-Up Agreement. Each officer, director and principal shareholder of
the Company who owns shares of the Company's capital stock which have not been
registered under the Securities Act of 1933 (the "Act") will enter into an
agreement, satisfactory to eCom, to the effect that such individual or entity
will not sell, assign or transfer any shares of the Company's capital stock for
a period commencing on the date of this Agreement and continuing, unless this
Agreement is terminated, for the longer of (i) 12 months from the closing of the
Transaction, or (ii) up to 12 months from the closing of a "Qualified Offering"
by the Surviving Corporation which occurs within the initial 12 month period
referred to in (i) above, as may be required by the managing underwriter or
placement agent of the Qualified Offering. For purposes of this Agreement, a
"Qualified Offering" means a private or public offering of the securities of the
Surviving Corporation conducted subsequent to the closing of the Transaction
which results in gross proceeds to the Surviving Corporation of at least $20
million. Shareholders of the Company which hold more than 10% of the outstanding
capital stock (or securities which are convertible into shares of capital stock)
which have been registered under the Act will enter into agreements satisfactory
to eCom regarding restrictions on their right to sell shares of the Company's
capital stock following the date of this Agreement. For purposes of this
Agreement, the term "Lock Up Agreement" shall mean any agreement referred to in
this Section 1.4 regarding a restriction on the right to sell the Company's
capital stock following the date of this Agreement.
1.5 Shareholder Approval. Each party shall use their best efforts to
obtain the appropriate shareholder approval of the Transaction including the
solicitation by the Company of proxies, and any and all other approvals and
consents necessary to close the Transaction. In furtherance of the foregoing,
Steven L. Vanechanos, Jr. and Steven L. Vanechanos, Sr., the Company?s Chief
Executive Officer and Secretary/Treasurer, respectively, and owners of an
aggregate total of 549,491 shares of the Company?s common stock, hereby each
individually agree to vote their shares to approve the Transaction. Nothing
herein shall be construed as limiting the fiduciary obligations of Steven L.
Vanechanos, Jr. and Steven L. Vanechanos, Sr. as members of the Company?s Board
of Directors.
1.6 Change of Name etc. The Certificate of Merger will provide that the
Surviving Corporation will change its name to "eB2B Commerce, Inc." In addition,
the Articles of Incorporation and the By-laws of the Surviving Corporation will
be amended in a form acceptable to eCom.
2 No Solicitation, Exclusive Dealing, etc. In order to induce eCom to proceed
with the Transaction, the Company, agrees that for the period from the date of
this Agreement through and including the date on which eCom and the Company
shall agree in writing to terminate this
2
<PAGE>
Agreement, but in no event later than four months from the date hereof, the
Company shall not (nor shall they permit any of the Company's officers,
directors, agents, or affiliates to) directly or indirectly solicit, encourage
(including by way of providing any nonpublic information concerning the Company
to any person), initiate or participate in any negotiations or discussions or
otherwise cooperate with in any way or provide information to any corporation,
partnership, person or other entity, or enter into (or authorize) any agreement
or agreement in principal, or announce any intention to do any of the foregoing,
with respect to any expression of interest, offer or proposal to acquire (i) all
or a substantial part of the Company's business, or (ii) any of its capital
stock, whether by stock purchase, merger, consolidation, purchase of assets,
tender offer or otherwise except in the exercise by the Board of Directors of
its fiduciary obligation to its shareholders to consider unsolicited offers, if
any, received by the Company for its acquisition. The Company acknowledges that
if one or more of the Company's affiliates or the Company were to cause a breach
of this provision, eCom would suffer damages that would be difficult to
ascertain and that, in the event of such breach, eCom shall be entitled to an
injunction restraining such breach and the Company and affiliates shall be
jointly and severally liable to eCom for any reasonable attorney"s fees incurred
in connection with obtaining such injunction. Any such equitable relief shall be
in addition to any other relief available to eCom. The Company shall immediately
notify eCom regarding any discussions between the Company and any other third
party as to any offer or proposal.
3 Transaction Costs. In the event either party withdraws from or terminates this
Agreement, then the withdrawing party shall be liable to the other for the
Transaction Costs incurred by such non withdrawing party which shall be payable
upon demand. In the event both parties mutually agree to terminate the
Agreement, then each party shall be responsible for their respective Transaction
Costs. For purposes of this paragraph, "Transaction Costs" means any all costs
and expenses including, without limitation, reasonable fees and disbursements of
consultants, financial advisors, counsel, accountants and investment bankers,
incurred in connection with the Transaction.
4 Break-up Fee. If the Company either withdraws from or terminates this
Agreement (other than by reason of mutual agreement by both parties to terminate
the Agreement) then, within 30 days of such event, the Company will pay to eCom
the sum of $500,000 as liquidated damages, provided however, no such liquidated
damages shall be due and payable in the event the Company does not enter into a
Definitive Agreement by November 15, 1999 solely as a result of either its due
diligence investigation of eCom, or the failure of the Preferred Holders to
agree to convert their securities to common stock prior to the closing of the
Transaction and/or enter into the Lock-Up Agreement; and, provided further, if
prior to such date, the Company receives an unsolicited offer to participate in
a Transaction which would result in a "change of control" of the Company, and
the Company subsequently accepts such offer, the Company will pay eCom the sum
of $500,000 as liquidated damages within 30 days of the acceptance of the offer.
In the event the liquidated damages described in the previous two sentences are
not paid within 30 days of the due date, the $500,000 due to eCom will be
convertible, at the discretion of the eCom, into 750,000 shares of the Company's
common stock issuable immediately upon written notice to the Company to that
effect.
5 Conduct of Business. Pending execution of the Definitive Agreement, the
Company agrees that it will:
a) Conduct its business in the ordinary course, and not engage in any
extraordinary transactions without informing eCom prior thereto.
b) Not dispose of any assets of the Company, except in the ordinary course
of business.
c) Not materially increase the annual level of compensation of any
employee, and not
3
<PAGE>
materially increase at all the annual level of compensation of any person
and not materially grant any unusual or extraordinary bonuses, benefits or
other forms of direct or indirect compensation to any employee, officer,
director or consultant except in the ordinary course of business.
d) Not increase, terminate, amend or otherwise modify any plan for the
benefit of employees.
e) Not pay any dividends, redeem any securities, or otherwise cause assets
of the Company to be distributed to any of its shareholders except by way
of compensation.
6 Definitive Agreement. The definitive agreement regarding the Transaction (the
"Definitive Agreement") will contain customary mutual covenants,
representations, warranties, indemnities and conditions to closing of each party
acceptable to the other party. Commencing immediately upon the execution of this
Agreement, the parties will negotiate, in good faith, the complete terms and
provisions of the Definitive Agreement. The parties further agree to enter into
the Definitive Agreement by the close of business on November 15, 1999.
7 Termination. This Agreement will automatically terminate upon the earlier of
(i) a closing of the Transaction or (ii) four months from the date hereof; or
(iii) the date of the mutual agreement of the parties or the withdrawal of a
party ("Termination Date").
8 Employee Solicitation. For the period from the date of this Agreement through
and including (a) nine months from the date of this Agreement, or (b) such
earlier date on which eCom and the Company shall agree in writing to terminate
this Agreement, the parties hereto shall not, directly or indirectly, solicit,
hire or otherwise retain as an employee or independent contractor, any full-time
employee of the other party.
9 Confidentiality. Except as and to the extent required by law, no party hereto
will disclose to a third party (other than to other representatives of the
Company or eCom who need to know such information for purposes of evaluating the
Transaction) any information, including Confidential Information, regarding the
existence of this Agreement, the terms of the Transaction, or the existence or
status of negotiations with respect thereto without the prior consent of eCom
and the Company. For purposes of this paragraph, "Confidential Information"
means any information about either party stamped "confidential" or identified in
writing as such to the other party promptly following its disclosure, unless (a)
such information is already known to such non-disclosing party or its
representatives or to others not bound by a duty of confidentiality or such
information becomes publicly available through no fault of the non-disclosing
party or its representatives, (b) the use of such information is necessary or
appropriate in making any filing or obtaining any consent or approval required
for the consummation of the Transaction, or (c) the furnishing or use of such
information is required by or necessary or appropriate in connection with legal
proceedings. Notwithstanding the foregoing provisions of this Section 9, in the
event a party is requested or required to disclose any of the Confidential
Information, such party will provide the other with prompt written notice of any
such request or requirement so that the disclosing party may seek a protective
order or other appropriate remedy. If, in the absence of a protective order or
other remedy, a party is nonetheless legally compelled to disclose Confidential
Information, such party may, without liability hereunder, disclose that portion
of the Confidential Information which is legally required to be disclosed,
provided that such party exercises reasonable efforts to preserve the
confidentiality of the Confidential Information, including, without limitation,
by cooperating with the other party to obtain an appropriate protective order or
other reliable assurance that confidential treatment will be accorded the
Confidential Information. Upon the written request of the disclosing party, the
non-
4
<PAGE>
disclosing party will promptly return to the disclosing party or destroy any
Confidential Information in its possession and certify in writing to the
disclosing party that it has done so.
10 Disclosure. Except as and to the extent required by law, without the prior
written consent of the other party, neither eCom nor the Company will, and each
will direct its representatives not to make, directly or indirectly, any public
comment, statement, or communication with respect to, or otherwise to disclose
or to permit the disclosure of the existence of discussions regarding, the
Transaction or any of the terms, conditions, or other aspects of the
Transaction. If a party is required by law to make any such disclosure, it must
first provide to the other party the content of the proposed disclosure, the
reasons that such disclosure is required by law, and the time and place that the
disclosure will be made. Notwithstanding the foregoing, the parties agree that
the Company will make a public announcement and required public filings
regarding this Agreement and the Definitive Agreement.
11 Miscellaneous.
11.1 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be original, but all of which
together shall constitute one and the same document. This Agreement shall be
effective upon the exchange by telefax of executed signature pages.
11.2 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York (regardless of the laws that
might otherwise govern under applicable principles of conflicts of law).
11.3 Access to Information. From the date hereof, each party shall (and
shall cause its respective officers, directors, employees, accountants and
agents to) afford the officers, employees and agents of the other party,
reasonable access at all reasonable times to its officers, employees, agents,
properties, offices and other facilities, and books and records, and furnish
such party with all financial, operating and other data and information as may
be reasonably requested.
11.4 Finders Fee. The parties hereby agree that a finders fee will be paid
upon the closing of the Transaction, to Commonwealth Associates, L.P., as
exclusive agent for eCom, for services rendered in the introduction of the
parties to this Transaction and assistance in negotiating and closing the
Transaction. The Company represents to eCom that no other broker or advisor is
or will be entitled to any fee as a result of the closing of the Transaction;
provided, however, Sands Brothers & Co., Ltd. is asserting that it is entitled
to a fee.
11.5 Entire Agreement, etc. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes any prior written or oral understandings or agreements among eCom or
the Company. This Agreement may be amended, modified or supplemented only by
written agreement executed by both parties.
11.6 No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
11.7 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
11.8 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.9 Notices. All notices, requests, demands, claims, and other
communications
5
<PAGE>
hereunder will be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given if (and then two (2) business
days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Company: Copy to:
Steven L. Vanechanos, Jr. Sarah Hewitt, Esq.
Chief Executive Officer Brown Raysman Millstein Felder
DynamicWeb Enterprises, Inc. & Steiner LLP
271 Route 46 West 120 West 45th Street
Building F, Suite 209 New York, New York 10036
Fairfield, New Jersey 07004
If to eCom: Copy to:
Peter Fiorillo Jack Hughes, Esq.
Chief Executive Officer Moskowitz Altman & Hughes LLP
eB2B Commerce, Inc. 11 East 44th Street
29 West 38th Street Suite 504
New York, New York 10018 New York, New York 10017
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
11.10 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Parties. No waiver by any Party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
11.11 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
11.12 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement.
THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK
6
<PAGE>
Please indicate your agreement to the terms set forth herein by executing
the enclosed copy of this Agreement. This Agreement shall be null and void if it
has not been executed by all parties and returned to eCom before 5:00 p.m., New
York time, on November 10, 1999.
Very truly yours,
eB2B Commerce, Inc.
By: /s/ Peter Fiorillo
--------------------------------
Peter Fiorillo
Chief Executive Officer
ACKNOWLEDGED AND AGREED TO:
This 10th day of November, 1999
DynamicWeb Enterprises, Inc.
By: /s/ Steven L. Vanechanos, Jr.
--------------------------------
Steven L. Vanechanos, Jr.
Chief Executive Officer
For purposes of Section 1.5 only:
/s/ Steven L. Vanechanos, Jr.
- ------------------------------------
Steven L. Vanechanos, Jr.
/s/ Steven L. Vanechanos, Sr.
- ------------------------------------
Steven L. Vanechanos, Sr.
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<PAGE>
eB2B Commerce, Inc.
29 West 38th Street
New York, New York 10018
November 19, 1999
Steven L. Vanechanos, Jr.
Chief Executive Officer
DynamicWeb Enterprises, Inc.
271 Route 46 West
Building F, Suite 209
Fairfield, NJ 07004
Re: Amendment No. 1 to Letter Agreement - Merger of eB2B Commerce,
Inc. with DynamicWeb Enterprises, Inc.
Dear Mr. Vanechanos:
This letter shall serve as Amendment No. 1 to the Letter Agreement (the
"Letter Agreement") between eB2B Commerce, Inc. ("eCom") and DynamicWeb
Enterprises, Inc. (the "Company"), dated November 10, 1999, by which the parties
set forth the terms upon which eCom proposes to merge with and into the Company.
Unless otherwise defined herein, the terms used in this Amendment No. 1
("Amendment") have the meanings assigned in the Letter Agreement.
1 Amendment of Section 1.1. The parties agree that Section 1.1 of the Letter
Agreement, captioned "Conversion of Shares" is hereby deleted in its entirety,
and replaced with the following provision:
"Conversion of Shares. Immediately prior to the closing of the
Transaction, the Company's outstanding capital stock will be comprised of
approximately 5,000,000 shares (but in no event shall there be more than
5,400,000 shares) of common stock (inclusive of the conversion of all
outstanding Series A and Series B Preferred Stock, and assuming the
conversion of all other warrants, options or other convertible
instruments). The Company will issue shares of its common stock (preferred
stock, warrants, options or other securities convertible into common
stock) equivalent to an aggregate amount of not less than 25 million
shares of common stock in exchange for all of the outstanding shares of
common stock (preferred stock, warrants, options or other securities
convertible into common stock) of eCom (including the preferred stock and
warrants issued by eCom in connection with the private placement of eCom's
securities referred to below). In addition, (i) for each outstanding share
of common stock of the Company (or common stock equivalent) in excess of
5,000,000 shares, the Company shall issue to eCom stockholders five (5)
additional shares of its common stock in connection with the Transaction,
and (ii) in the event eCom receives in excess of $15 million in gross
proceeds from the private placement of its securities, for each additional
dollar in excess
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of the $15 million gross proceeds received by eCom, the Company will issue
to eCom stockholders .484 of a share of its common stock and a warrant to
purchase .242 of a share of the Company's common stock at an exercise
price of $2.06 per shares (subject to appropriate adjustment as may be
required by (i) above. In furtherance of the foregoing, as a condition
precedent to the closing of the Transaction, the Company will provide eCom
with evidence of the agreement of the holders of the Company's outstanding
Series A and Series B Preferred Stock (the "Preferred Holders") to (i)
convert their holdings to the Company's common stock as of the closing of
the Transaction, and (ii) enter into the Lock-Up Agreement with the
modifications and provisions acceptable to eCom."
2 Amendment of Section 1.2. The parties agree that Section 1.2 of the Letter
Agreement, captioned "Directors and Officers" is hereby deleted in its entirety,
and replaced with the following provision:
"Directors and Officers. The directors and officers of eCom in office at
and as of the date of the closing of the Transaction will remain the
directors and officers of the Surviving Corporation (retaining their
respective positions and terms of office except for the current Chief
Technology Officer who shall change positions upon the closing of the
Transaction). One additional member of the Board of Directors of the
Surviving Corporation will be Steven L. Vanechanos, Jr. For a period of
two years from the date of the closing of the Transaction, the Surviving
Corporation, acting through its Board of Directors and in accordance with
its Certificate of Incorporation, By-Laws and applicable law, shall
recommend in its proxy statement for each annual or special meeting of
stockholders, at which directors shall be elected, and shall nominate at
each such subsequent stockholders meeting, as part of the management's or
the Board of Directors' slate for election to the Surviving Corporation's
Board of Directors, Steven L. Vanechanos, Jr. as a member of the Board of
Directors. All shares for which the Surviving Corporation's management or
Board of Directors holds proxies (including undesignated proxies) shall be
voted in favor of the election of Steven L. Vanechanos, Jr."
3 Replacement of Section 4. The parties agree that Section 4 of the Letter
Agreement, captioned "Break-up Fee," is hereby deleted in its entirety, and
replaced with the following provision:
"Break-up Fee. If the Company either withdraws from or terminates this
Agreement (other than by reason of mutual agreement by both parties to
terminate this Agreement) then, within 30 days of such event, the Company
will pay to eCom the sum of $500,000 as liquidated damages, provided
however, no such liquidated damages shall be due and payable in the event
eCom does not proceed to close the Transaction solely as a result of the
failure of the Preferred Holders to agree to convert their securities to
common stock as of the closing of the Transaction and/or enter into the
Lock-Up Agreement; and, provided further, if prior to such date, the
Company receives an unsolicited offer to participate in a Transaction
which would result in a 'change of control' of the Company, and the
Company subsequently accepts such offer, the Company will pay eCom the sum
of $500,000 as liquidated damages within 30 days of the acceptance of the
offer. In the event the liquidated damages described in the previous
sentence are not paid within 30 days of the due date, the $500,000 due to
eCom will be convertible, at the discretion of eCom, into 750,000 shares
of the Company's common stock issuable immediately upon written notice to
the Company to that effect."
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4 Amendment of Section 6. The parties agree that the last sentence of Section 6
of the Letter Agreement, captioned "Definitive Agreement," is hereby amended by
replacing the date reference "November 15, 1999" with the date "November 23,
1999."
5 Additional Provisions. The parties agree that the following provisions are
hereby added to and are deemed part of the Letter Agreement:
5.1 Employment Terms for Steven L. Vanechanos, Jr.. The parties agree that
upon the closing of the Transaction, Steven L. Vanechanos, Jr. ("SLV" for
purposes of this Section) will be employed by the Surviving Corporation as its
Chief Technology Officer. The principal terms of such an employment relationship
will be set forth in an employment agreement between the Surviving Corporation
and SLV to be entered into upon the closing of the Transaction. The principal
terms the employment agreement are as follows: (i) term of two years, (ii)
annual compensation comprised of base salary of $170,000, and a minimum
guaranteed annual bonus of $40,000, with $20,000 of such sum paid in four
quarterly $5,000 installments during each year, and the balance paid within 90
days of the end of each year, (iii) four weeks of vacation annually, and (iv)
severance pay equal to two years of base compensation, paid in accordance with
normal payroll procedures, in the event the Surviving Corporation terminates the
employment of SLV without "cause" prior to the end of the term. The definition
of the term "cause" will be the same definition as that set forth in the
employment agreement between eCom and Peter Fiorillo, dated December 1, 1998.
The form of the employment agreement between the Surviving Corporation and SLV
shall be reasonably acceptable to the parties.
5.2 Terms of Indemnification to be Provided by Steven L. Vanechanos, Jr.
The parties agree that Steven L. Vanechanos, Jr. ("SLV" for purposes of this
Section) will enter into an indemnification agreement with eCom upon the closing
of the Transaction. The principal terms of the indemnification agreement are as
follows: (i) SLV will indemnify and hold harmless the Surviving Corporation and
its affiliates from any damages incurred as a result of any material breach or
inaccuracy of any representation or warranty of the Company if, at the time such
representation or warranty was made any member of the "Knowledge Group" (the
"Knowledge Group" will be comprised of SLV and James D. Conners, (the Company's
president and chief operating officer) had actual knowledge of such
misrepresentation; (ii) the representations and warranties of the Company will
survive for the period from the date of the Merger Agreement until the
conclusion of the first annual audit of the Surviving Corporation following the
closing of the Transaction, (iii) no claim for indemnification will be made by
the Surviving Corporation and no indemnification shall be due until such time as
the damages incurred by the Surviving Corporation exceeds $250,000, in which
event the Surviving Corporation shall be reimbursed only for the damages
incurred by the Surviving Corporation in excess of $250,000 up to a maximum
amount equal to the value of the "SLV Shares" (as defined below). Any claim for
indemnification made by the Surviving Corporation may be satisfied by SLV by
surrendering such number of SLV Shares as are equal in value to the claim or in
cash. For purposes of this Agreement the "SLV Shares" means the shares of the
Surviving Corporation owned by SLV, which are to be held in escrow pursuant to
the terms of a separate escrow agreement for a term as set forth in the
Indemnification Agreement, and the value of such shares shall be the average of
the closing bid prices for the shares of the Surviving Corporation's common
stock as reported upon the principal stock exchange where such shares are traded
for the 10 days immediately preceding and the 10 days immediately succeeding the
date of the resolution of any claim by the Surviving Corporation for any such
indemnification.
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5.3 Representations Concerning Interworld Technology. The Definitive
Agreement will contain representations regarding the "Interworld Commerce
Exchange Software" licensed by eCom from Interworld Corporation (the "Interworld
Software"). The representations will include representations to the effect that
(i) the Interworld Software can operate on a Solaris (Unix) Platform with an
Oracle database, and an Apache Web Server platform, and (ii) eCom has the right
to integrate additional software applications with the Interworld Software which
will operate in conjunction with the Interworld Software. Such rights do not
include the right to modify, enhance or change the source code of the Interworld
Software.
6 Agreement to Remain in Full Force and Effect. The parties agree that except as
modified by the terms of this Amendment, the Letter Agreement shall remain in
full force and effect.
THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK
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Please indicate your agreement to the terms set forth in this Amendment by
executing the enclosed copy of this Amendment
Very truly yours, eB2B Commerce, Inc.
By: /s/ Peter Fiorillo
--------------------------------
Peter Fiorillo
Chief Executive Officer
ACKNOWLEDGED AND AGREED TO:
This 19th day of November, 1999
DynamicWeb Enterprises, Inc.
By: /s/ Steven L. Vanechanos, Jr.
--------------------------------
Steven L. Vanechanos, Jr.
Chief Executive Officer
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WARRANT AGREEMENT
Warrant Agreement (the "Agreement"), dated as of this 12th day of
November, 1999, by and among eB2B Commerce, Inc., a Delaware corporation
("eCom"), and Dynamic Web Enterprises, Inc., a New Jersey corporation (the
"Company").
W I T N E S S E T H
WHEREAS, the Company desires to issue to eCom, and eCom desires to receive
from the Company, warrants to purchase shares of the Company's Common Stock on
the terms and conditions set forth in this Agreement in consideration of the
execution and delivery by eCom of a "Loan Agreement" dated as of the date hereof
between the parties (the "Loan Agreement").
NOW THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company and eCom, the
parties hereto agree as follows:
1 Definitions. As used herein, the following terms shall have the following
meanings, unless the context shall otherwise require:
1.1 "Common Stock" shall mean stock of the Company of any class, whether
now or hereafter authorized, which has the right to participate in the
distributions of earnings and assets of the Company without limit as to amount
or percentage, which at the date hereof consists of 50,000,000 authorized shares
of Common Stock, $.0001 par value.
1.2 "Exercise Date" shall mean, as to the Warrants, the date on which the
Company shall have received both (a) the Warrant Certificate representing such
Warrant, with the exercise form thereon duly executed by the Holder thereof or
its attorney duly authorized in writing, and (b) payment in cash, or by official
bank or certified check made payable to the Company, of an amount in lawful
money of the United States of America equal to the Exercise Price.
1.3 "Exercise Price" shall mean the purchase price to be paid upon
exercise of each Warrant in accordance with the terms hereof, which price shall
be $2.00 per share subject to adjustment from time to time pursuant to the
provisions of Section 8 hereof.
1.4 "Holder" shall mean eB2B Commerce, Inc.
1.5 "Initial Warrant Exercise Date" shall mean the date hereof.
1.6 "Loan Agreement" shall mean a certain Loan Agreement executed between
eCom and the Company on November 12, 1999, which provides that eCom will make a
series of loans to the Company.
1.7 "Transfer Agent" shall mean American Stock Transfer & Trust Company,
as the Company's transfer agent, or its authorized successor, as such.
1.8 "Warrant Expiration Date" shall mean 5:00 P.M. (New York time) on the
120th day from the Initial Warrant Exercise Date, provided however that in the
event eCom terminates the Letter Agreement, then all the Warrants will be
forfeited by eCom as of the date
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of such event. Upon notice to Holder, the Company shall have the right to extend
the Warrant Expiration Date.
1.9 "Warrant Shares" shall mean the shares of Common Stock deliverable
upon exercise of the Warrants, as adjusted from time to time.
2 Warrants And Issuance of Warrant Certificates.
2.1 As additional consideration for the Loan Agreement by eCom, subject to
the terms and conditions of this Agreement, the Company agrees to issue to eCom,
the following: (i) upon the execution of the Letter Agreement, warrants to
purchase 2,500,000 shares of the Company's Common Stock, and (ii) upon the
execution of the Definitive Agreement, warrants to purchase an additional
5,000,000 shares of the Company's Common Stock ("Warrants") having an exercise
price of $2.00 per share, which amount shall be subject to adjustments as
provided herein, at any time prior to the Warrant Expiration Date (the "Warrant
Shares"). The Warrants shall be substantially in the form attached hereto as
Exhibit A. It is understood and agreed that the consideration for the Company's
issuance of the Warrants to eCom shall be eCom's entering into the Loan
Agreement with the Company; eCom will not be required to pay any issuance price
or other amount to the Company or to any other person or entity in connection
with the Company's issuance of the Warrants to eCom; provided, however, that in
order to exercise the Warrants, in whole or in part, eCom will be required to
pay the exercise prices set forth herein (except as otherwise provided herein).
2.2 From time to time, up to the Warrant Expiration Date, the Company
shall execute and delivery Warrant Certificates in required whole number
denominations to the persons entitled thereto in connection with any transfer or
exchange permitted under this Agreement; provided that no Warrant Certificate
shall be issued except (i) those initially issued hereunder, (ii) those issued
on or after the Initial Warrant Certificate, to evidence any unexercised
Warrants held by Holder (iii) those issued upon any transfer or exchange
pursuant to Section 6: (iv) those issued in replacement of lost, stolen,
destroyed or mutilated Warrant Certificates pursuant to Section 7; and (v) at
the option of the Company, in such form as may be approved by its Board of
Directors, to reflect (a) any adjustment or change in the Exercise Price for the
number of shares of Common Stock purchasable upon exercise of the Warrants, made
pursuant to Section 8 hereof and (b) other modifications approved by the Holder
in accordance with Section 14 hereof.
3 Form And Execution of Warrant Certificates.
3.1 The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A (the provisions of which are hereby incorporated herein) and
may have such letters, numbers or other marks of identification or designation
and such legends, summaries or endorsements printed, lithographed, engraved or
typed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Warrants may be listed, or to
conform to usage. The Warrant Certificates shall be dated the date of issuance
thereof (whether upon initial issuance, transfer, exchange or in lieu of
mutilated, lost, stolen, or destroyed Warrant Certificates) and issued in
registered form. Warrants shall be numbered serially with the letters PW.
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3.2 Warrant Certificates shall be executed on behalf of the Company by its
Chairman of the Board, Chief Executive Officer, President or any Vice President
and by its Secretary or an Assistant Secretary, by manual signatures or by
facsimile signatures printed thereon, and shall have imprinted thereon a
facsimile of the Company's seal. In case any officer of the Company who shall
have signed any of the Warrant Certificates shall cease to be such officer of
the Company before the date of issuance of the Warrant Certificates and issue
and delivery thereof, such Warrant Certificates may nevertheless be issued and
delivered with the same force and effect as though the person who signed such
Warrant Certificates had not ceased to be such officer of the Company. After
execution by the Company, Warrant Certificates shall be delivered by the Company
to eCom.
4 Exercise.
4.1 eCom is entitled to exercise the Warrants, in whole or in part,
provided however, that in the event eCom exercises part of the Warrants, eCom
must exercise the Warrants in increments of 2,500,000 Warrants, at any time on
or after the Initial Exercise Date, but not after the Warrant Expiration Date,
upon the terms and subject to the conditions set forth herein and in the
applicable Warrant Certificate. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the Exercise Date. As soon as
practicable on or after the Exercise Date, the Company shall deposit the
proceeds received from the exercise of a Warrant, and promptly after clearance
of checks received in payment of the Exercise Price pursuant to such Warrants,
cause to be issued and delivered by the Transfer Agent, to eCom, a certificate
for the securities deliverable upon such exercise (plus a certificate for any
remaining unexercised Warrants).
5 Reservation of Shares; Listing; Payment of Taxes; Etc.
5.1 The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issuance
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants and payment of the Exercise Price shall, at the time of delivery, be
duly and validly issued, fully paid, nonassessable and free from all taxes,
liens and charges with respect to the issue thereof (other than those which the
Company shall promptly pay or discharge).
5.2 The Company will use reasonable efforts to obtain appropriate
approvals or registrations under state "blue sky" securities laws with respect
to the exercise of the Warrants; provided, however, that the Company shall not
be obligated to file any general consent to service of process or qualify as a
foreign corporation in any jurisdiction. With respect to any such securities
laws, however, Warrants may not be exercised by, or shares of Common Stock
issued to eCom in any state in which such exercise would be unlawful.
5.3 The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance, or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of eCom, then no such delivery shall be
made unless eCom has paid to the Company the amount of transfer taxes or charges
incident thereto, if any.
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6 Exchange And Registration of Transfer. Subject to the restrictions on transfer
contained in the Warrant Certificates.
6.1 The Company shall keep in its office books in which, subject to such
reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof in accordance with its regular practice.
Upon due presentment for registration of transfer of any Warrant Certificate at
its office, the Company shall execute, issue and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing an equal
aggregate number of Warrants.
6.2 With respect to all Warrant Certificates presented for registration of
transfer, or for exchange or exercise, the subscription form on the reverse
thereof shall be duly endorsed, or be accompanied by a written instrument or
instruments of transfer and subscription, in form satisfactory to the Company,
duly executed by it or its attorney-in-fact duly authorized in writing.
6.3 The Company may require payment by such holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith.
6.4 All Warrant Certificates surrendered for exercise or for exchange in
case of mutilated Warrant Certificates shall be promptly canceled by the Company
and thereafter retained by the Company until termination of this Agreement or,
with the prior written consent of eCom, disposed of or destroyed.
6.5 Prior to due presentment for registration of transfer thereof, the
Company may deem and treat the Holder of Warrant Certificates as the absolute
owner thereof and of each Warrant represented thereby (notwithstanding any
notations of ownership or writing thereon made by anyone other than a duly
authorized officer of the Company) for all purposes and shall not be affected by
any notice to the contrary.
7 Loss or Mutilation. Upon receipt by the Company of evidence satisfactory to
them of the ownership of and loss, theft, destruction or mutilation of any
Warrant Certificate and (in case of loss, theft or destruction) of indemnity
satisfactory to them, and (in the case of mutilation) upon surrender and
cancellation thereof, the Company shall execute and countersign and deliver to
eCom in lieu thereof a new Warrant Certificate of like tenor representing an
equal aggregate number of Warrants. Applicants for a substitute Warrant
Certificate shall comply with such other reasonable regulations and pay such
other reasonable charges as the Company may prescribe.
8 Anti-dilution Provisions. The Exercise Price in effect at any time and the
number and kind of securities purchasable upon the exercise of the Warrants
shall be subject to adjustment from time to time upon the happening of certain
events as follows:
8.1 In case the Company shall hereafter (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the numerator
of which shall be the number
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of shares of Common Stock outstanding immediately prior to such action. Such
adjustment shall be made successively whenever any event listed above shall
occur.
8.2 Whenever the Exercise Price payable upon exercise of each Warrant is
adjusted pursuant to Section 8.1 above, the number of Shares purchasable upon
exercise of this Warrant shall simultaneously be adjusted by multiplying the
number of Shares initially issuable upon exercise of this Warrant by the
Exercise Price in effect on the date hereof and dividing the product so obtained
by the Exercise Price, as adjusted.
8.3 No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least five cents ($0.05)
in such price; provided, however, that any adjustments which by reason of this
Subsection (i) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Section 8 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this Section 8
to the contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the Exercise Price, in addition to those
required by this Section 8, as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares of Common Stock,
or any subdivision, reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income tax liability to the
holders of Common Stock or securities convertible into Common Stock (including
Warrants).
8.4 Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly but no later than ten (10) days after any request for
such an adjustment by the Holder, cause a notice setting forth the adjusted
Exercise Price and adjusted number of Shares issuable upon exercise of each
Warrant, and, if requested, information describing the transactions giving rise
to such adjustments, to be mailed to the Holder at its address appearing in the
Warrant Register, and shall cause a certified copy thereof to be mailed to its
transfer agent, if any. The Company may retain a firm of independent certified
public accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
Section 8, and a certificate signed by such firm shall be conclusive evidence of
the correctness of such adjustment.
8.5 In the event that at any time, as a result of an adjustment made
pursuant to Subsection (a) above, the Holder of this Warrant thereafter shall
become entitled to receive any shares of the Company, other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of this
Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Sections 8.1 and 8.2 above.
8.6 Irrespective of any adjustments in the Exercise Price or the number or
kind of shares purchasable upon exercise of this Warrant, Warrants theretofore
or thereafter issued may continue to express the same price and number and kind
of shares as are stated in the similar Warrants initially issuable pursuant to
this Agreement.
9 Fractional Warrants And Fractional Shares.
9.1 If the number of shares of Common Stock purchasable upon the exercise
of each Warrant is adjusted pursuant to Section 8 hereof, the Company shall
nevertheless not be required to issue fractions of shares, upon exercise of the
Warrants or otherwise, or to
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distribute certificates that evidence fractional shares. With respect to any
fraction of a share called for upon any exercise hereof, the Company shall pay
an amount in cash equal to such fraction multiplied by the current market value
of such fractional share, determined as follows:
9.1.1 If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ National Market System ("NMS"), the current market
value shall be the average of the last reported sale prices of the Common Stock
on such exchange for the ten (10) trading days prior to the date of exercise of
this Warrant; provided that if no such sale is made on a day within such period
or no closing sale price is quoted, that day's market value shall be the average
of the closing bid and asked prices for such day on such exchange or system; or
9.1.2 If the Common Stock is listed in the over-the-counter market
(other than on NMS) or admitted to unlisted trading privileges, the current
market value shall be the mean of the last reported bid and asked prices
reported by the National Quotation Bureau, Inc. for the ten (10) trading days
prior to the date of the exercise of this Warrant; or
9.1.3 If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount determined in a reasonable manner by the Board
of Directors of the Company.
10 Warrant Holder Not Deemed Stockholder. The Holder shall not be entitled to
vote or to receive dividends or be deemed the holder of Common Stock that may at
any time be issuable upon exercise of such Warrants for any purpose whatsoever,
nor shall anything contained herein be construed to confer upon the Holder, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issue or reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
11 Rights of Action. All rights of action with respect to this Agreement are
vested in the Holder, and the Holder, may, on its own behalf and for its own
benefit, enforce against the Company its right to exercise its Warrants for the
purchase of shares of Common Stock in the manner provided in the Warrant
Certificate and this Agreement.
12 Agreement of Warrant Holder. The Holder, by its acceptance thereof, consents
and agrees with the Company that the Warrants are transferable only on the
registry books of the Company by the Holder thereof in person or by its attorney
duly authorized in writing and only if the Warrant Certificates representing
such Warrants are surrendered at the office of the Company, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Company in
its sole discretion, together with payment of any applicable transfer taxes.
13 Cancellation of Warrant Certificates. If the Company shall purchase or
acquire any Warrant or Warrants, the Warrant Certificate or Warrant Certificates
evidencing the same shall thereupon be canceled by it and retired. The Company
shall also cancel Common Stock following exercise of any or all of the Warrants
represented thereby or delivered to it for transfer, splitup, combination or
exchange.
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14 Modification of Agreement. The parties hereto may by supplemental agreement
make any changes or corrections in this Agreement (i) that it shall deem
appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or manifest mistake or error herein contained; (ii) to reflect an
increase in the number of Warrants which are to be governed by this Agreement
to; or (iii) that it may deem necessary or desirable
15 Notices. All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first class registered or certified mail, postage prepaid as follows: if
to the Holder, eB2B Commerce, Inc., 29 West 38th Street, New York, New York
10018, Att: Peter J. Fiorillo; if to the Company, DynamicWeb Enterprises, Inc.,
271 Route 46 West, Building F, Suite 209, Fairfield, New Jersey 07004.
16 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without reference to
principles of conflict of laws.
17 Construction. The Parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement.
18 Severability. If any provision of this Agreement is declared invalid by any
lawful tribunal, then it shall be adjusted to conform to legal requirements of
that tribunal and that modification shall automatically become a part of the
Agreement. Or, if no adjustment can be made, the provision shall be deleted as
though never included in the Agreement and the remaining provisions of the
Agreement shall remain in full force and effect.
19 Binding Effect. This Agreement shall be binding upon and inure to the benefit
of the Company (and their respective successors and assigns) and eCom. Nothing
in this Agreement is intended or shall be construed to confer upon any other
person any right, remedy or claim, in equity or at law, or to impose upon any
other person any duty, liability or obligation.
20 Termination. This Agreement shall terminate on the earlier to occur of (i)
the close of business on the Warrant Expiration Date of all the Warrants; or
(ii) the date upon which all Warrants have been exercised or redeemed.
21 Counterparts. This Agreement may be executed in several counterparts, which
taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
7
<PAGE>
eB2B COMMERCE, INC.
By: /s/ Peter J. Fiorillo
--------------------------------
Peter J. Fiorillo
Chief Executive Officer
DYNAMICWEB ENTERPRISES, INC.
By: /s/ Steven L. Vanechanos, Jr.
---------------------------------
Steven L. Vanechanos, Jr.
Chief Executive Officer
8
<PAGE>
EXHIBIT A
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED
UNTIL (1) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT BY THE ISSUER
OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT
THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES
LAWS.
No. PW ____________ _________ Warrants
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
DYNAMICWEB ENTERPRISES, INC.
This certifies that FOR VALUE RECEIVED eB2B Commerce, Inc. or its
registered assigns (the "Holder" or "eCom") is the owner of the number of
Warrants ("Warrants") specified above. Each Warrant initially entitles eCom to
purchase, subject to the terms and conditions set forth in this Certificate and
the Warrant Agreement (as hereinafter defined), one fully paid and nonassessable
share of Common Stock, $.0001 par value ("Common Stock") of DynamicWeb
Enterprises, Inc., a New Jersey corporation (the "Company") at any time
commencing on the Initial Exercise Date and prior to the Expiration Date (both
as hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof, duly executed at
the corporate office of the Company, or its successor, accompanied by payment of
an amount equal to $2.00 for each Warrant (the "Exercise Price") in lawful money
of the United States of America in cash or by official bank or certified check
made payable to DynamicWeb Enterprises, Inc. The Company may, at its election,
reduce the Exercise Price.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated November 12,
1999 by and among the Company and eCom.
In the event of certain contingencies provided for in the Warrant
Agreement, the Exercise Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Holder, but no fractional shares of Common Stock will be issued. eCom is
entitled to exercise the Warrants, in whole or in part, provided however, that
in the event eCom exercises part of the Warrants, eCom must exercise the
Warrants in increments of 2,500,000 Warrants, at any time on or after the
Initial Exercise Date, but not after the Warrant Expiration Date. In the case of
the exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Company shall countersign, for the
<PAGE>
balance of such Warrants.
The term "Initial Exercise Date" shall mean the date hereof.
The term "Expiration Date" shall on the 120th day from the Initial
Warrant Exercise Date, provided however that in the event eCom terminates the
Letter Agreement, then all the Warrants will be forfeited by eCom as of the date
of such event. Upon notice to Holder, the Company shall have the right to extend
the Warrant Expiration Date.
This Warrant Certificate is exchangeable, upon the surrender hereof
by the Holder at the corporate office of the Company, for a new Warrant
Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Holder at the time of
such surrender. Upon due presentment with any tax or other governmental charge
imposed in connection therewith, for registration of transfer of this Warrant
Certificate at such office, a new Warrant Certificate or Warrant Certificates
representing an equal aggregate number of Warrants will be issued to the
transferee in exchange therefor, subject to the limitations provided in the
Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Holder
shall not be entitled to any of the rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Prior to due presentment for registration of transfer hereof, the
Company may deem and treat the Holder as the absolute owner hereof and of each
Warrant represented hereby (notwithstanding any notations of ownership or
writing hereon made by anyone other than a duly authorized officer of the
Company) for all purposes and shall not be affected by any notice to the
contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed, manually or in facsimile by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
DYNAMICWEB ENTERPRISES, INC.
By:
----------------------------------------
Steven L. Vanechanos, Jr.
Chief Executive Officer
Dated: December , 1999
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Holder
in Order to Exercise Warrants
The undersigned Holder hereby irrevocably elects to exercise
Warrants represented by this Warrant Certificate, and to purchase the securities
issuable upon the exercise of such Warrants, and requests that certificates for
such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
______________________
______________________
______________________
______________________
[please print or type name and address]
and be delivered to
______________________
______________________
______________________
______________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Holder at the
address stated below.
Dated:________________________
X_____________________________
________________________
________________________
Address
_____________________
Taxpayer Identification Number
______________________________
Signature Guaranteed
<PAGE>
ASSIGNMENT
To Be Executed by the Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ____________________ hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
______________________
______________________
______________________
______________________
[please print or type name and address]
_________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints ___________________
_________________Attorney to transfer this Warrant Certificate on the books of
the Company, with full power of substitution in the premises.
Dated:________________________
X_____________________________
Signature Guaranteed
______________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
<PAGE>
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED
UNTIL (1) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT BY THE ISSUER
OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT
THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES
LAWS.
No. PW 1 2,500,000 Warrants
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
DYNAMICWEB ENTERPRISES, INC.
This certifies that FOR VALUE RECEIVED eB2B Commerce, Inc. or its
registered assigns (the "Holder" or "eCom") is the owner of the number of
Warrants ("Warrants") specified above. Each Warrant initially entitles eCom to
purchase, subject to the terms and conditions set forth in this Certificate and
the Warrant Agreement (as hereinafter defined), one fully paid and nonassessable
share of Common Stock, $.0001 par value ("Common Stock") of DynamicWeb
Enterprises, Inc., a New Jersey corporation (the "Company") at any time
commencing on the Initial Exercise Date and prior to the Expiration Date (both
as hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof, duly executed at
the corporate office of the Company, or its successor, accompanied by payment of
an amount equal to $2.00 for each Warrant (the "Exercise Price") in lawful money
of the United States of America in cash or by official bank or certified check
made payable to DynamicWeb Enterprises, Inc. The Company may, at its election,
reduce the Exercise Price.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated November 12,
1999 by and among the Company and eCom.
In the event of certain contingencies provided for in the Warrant
Agreement, the Exercise Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Holder, but no fractional shares of Common Stock will be issued. eCom is
entitled to exercise the Warrants, in whole or in part, provided however, that
in the event eCom exercises part of the Warrants, eCom must exercise the
Warrants in increments of 2,500,000 Warrants, at any time on or after the
Initial Exercise Date, but not after the Warrant Expiration Date. In the case of
the exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Company shall countersign, for the
<PAGE>
balance of such Warrants.
The term "Initial Exercise Date" shall mean the date hereof.
The term "Expiration Date" shall on the 120th day from the Initial
Warrant Exercise Date, provided however that in the event eCom terminates the
Letter Agreement, then all the Warrants will be forfeited by eCom as of the date
of such event. Upon notice to Holder, the Company shall have the right to extend
the Warrant Expiration Date.
This Warrant Certificate is exchangeable, upon the surrender hereof
by the Holder at the corporate office of the Company, for a new Warrant
Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Holder at the time of
such surrender. Upon due presentment with any tax or other governmental charge
imposed in connection therewith, for registration of transfer of this Warrant
Certificate at such office, a new Warrant Certificate or Warrant Certificates
representing an equal aggregate number of Warrants will be issued to the
transferee in exchange therefor, subject to the limitations provided in the
Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Holder
shall not be entitled to any of the rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Prior to due presentment for registration of transfer hereof, the
Company may deem and treat the Holder as the absolute owner hereof and of each
Warrant represented hereby (notwithstanding any notations of ownership or
writing hereon made by anyone other than a duly authorized officer of the
Company) for all purposes and shall not be affected by any notice to the
contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed, manually or in facsimile by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
DYNAMICWEB ENTERPRISES, INC.
By: /s/ Steven L. Vanechanos, Jr.
-------------------------------------
Steven L. Vanechanos, Jr.
Chief Executive Officer
Dated: November 12, 1999
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Holder
in Order to Exercise Warrants
The undersigned Holder hereby irrevocably elects to exercise
Warrants represented by this Warrant Certificate, and to purchase the securities
issuable upon the exercise of such Warrants, and requests that certificates for
such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
______________________
______________________
______________________
______________________
[please print or type name and address]
and be delivered to
______________________
______________________
______________________
______________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Holder at the
address stated below.
Dated:________________________
X_____________________________
________________________
________________________
Address
_____________________
Taxpayer Identification Number
______________________________
Signature Guaranteed
<PAGE>
ASSIGNMENT
To Be Executed by the Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ____________________ hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
______________________
______________________
______________________
______________________
[please print or type name and address]
_________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints ___________________
_________________Attorney to transfer this Warrant Certificate on the books of
the Company, with full power of substitution in the premises.
Dated:________________________
X_____________________________
Signature Guaranteed
______________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
<PAGE>
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED
UNTIL (1) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) RECEIPT BY THE ISSUER
OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT
THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES
LAWS.
No. PW 2 5,000,000 Warrants
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
DYNAMICWEB ENTERPRISES, INC.
This certifies that FOR VALUE RECEIVED eB2B Commerce, Inc. or
its registered assigns (the "Holder" or "eCom") is the owner of the number of
Warrants ("Warrants") specified above. Each Warrant initially entitles eCom to
purchase, subject to the terms and conditions set forth in this Certificate and
the Warrant Agreement (as hereinafter defined), one fully paid and nonassessable
share of Common Stock, $.0001 par value ("Common Stock") of DynamicWeb
Enterprises, Inc., a New Jersey corporation (the "Company") at any time
commencing on the Initial Exercise Date and prior to the Expiration Date (both
as hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof, duly executed at
the corporate office of the Company, or its successor, accompanied by payment of
an amount equal to $2.00 for each Warrant (the "Exercise Price") in lawful money
of the United States of America in cash or by official bank or certified check
made payable to DynamicWeb Enterprises, Inc. The Company may, at its election,
reduce the Exercise Price.
This Warrant Certificate and each Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
November 19, 1999 by and among the Company and eCom.
In the event of certain contingencies provided for in the
Warrant Agreement, the Exercise Price or the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option
of the Holder, but no fractional shares of Common Stock will be issued. eCom is
entitled to exercise the Warrants, in whole or in part, provided however, that
in the event eCom exercises part of the Warrants, eCom must exercise the
Warrants in increments of 2,500,000 Warrants, at any time on or after the
Initial Exercise Date, but not after the Warrant Expiration Date. In the case of
the exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Company shall countersign, for the balance of such Warrants.
The term "Initial Exercise Date" shall mean the date hereof.
The term "Expiration Date" shall on the 120th day from the
Initial Warrant Exercise Date, provided however that in the event eCom
terminates the Letter Agreement, then all the
<PAGE>
Warrants will be forfeited by eCom as of the date of such event. Upon notice to
Holder, the Company shall have the right to extnd the Warrant Expiration Date.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Holder at the corporate office of the Company, for a new Warrant
Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Holder at the time of
such surrender. Upon due presentment with any tax or other governmental charge
imposed in connection therewith, for registration of transfer of this Warrant
Certificate at such office, a new Warrant Certificate or Warrant Certificates
representing an equal aggregate number of Warrants will be issued to the
transferee in exchange therefor, subject to the limitations provided in the
Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Holder shall not be entitled to any of the rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Prior to due presentment for registration of transfer hereof,
the Company may deem and treat the Holder as the absolute owner hereof and of
each Warrant represented hereby (notwithstanding any notations of ownership or
writing hereon made by anyone other than a duly authorized officer of the
Company) for all purposes and shall not be affected by any notice to the
contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two of its officers
thereunto duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
DYNAMICWEB ENTERPRISES, INC.
By: /s/ Steven L. Vanechanos, Jr.
-------------------------------
Steven L. Vanechanos, Jr.
Chief Executive Officer
Dated: November 19, 1999
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Holder
in Order to Exercise Warrants
The undersigned Holder hereby irrevocably elects to
exercise_______ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
--------------------
--------------------
--------------------
--------------------
[please print or type name and address]
and be delivered to
--------------------
--------------------
--------------------
--------------------
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Holder at the
address stated below.
Dated:
------------------
X
-----------------------
------------------
------------------
Address
----------------------
Taxpayer Identification Number
- --------------------------
Signature Guaranteed
ASSIGNMENT
<PAGE>
To Be Executed by the Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ________________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
--------------------
--------------------
--------------------
--------------------
[please print or type name and address]
_________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
____________________________________ _______________________________ Attorney to
transfer this Warrant Certificate on the books of the Company, with full power
of substitution in the premises.
Dated:
-------------------
X
------------------------
Signature Guaranteed
- -------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
<PAGE>
[LOGO DYNAMICWEB ENTERPRISES, INC.]
November 27, 1998
Robert J. Gailus
50 Riverside Drive
NY, NY 10024
Bob,
As agreed, the following are the terms of our agreements vis-a-vis your seat on
our Board of Directors and your Financial consulting engagement:
1) Board Seat entitles you to 3,912 options at market price (Wed. 11/25 last
trade is 2 5/8). The terms of the options (length, vesting, etc.) are outlined
in our Outside Directors Stock Option Plan.
2) Financial Consulting compensation is 25,000 options (non-qualified) at
market price (Wed. 11/25 last trade is 2 5/8). The terms of the options (length,
vesting, etc.), although not issued under the Outside Directors Plan, are
identical to those in our Outside Directors Stock Option Plan.
We're really looking forward to your active participation on our Board of
Directors and I'm personally looking forward to your involvement as my special
financial adviser.
Welcome aboard.
Sincerely
/s/ Steve Vanechanos
- ---------------------------
Steve Vanechanos, Jr.
CEO
Accepted by:
ROBERT J. GAILUS
- ----------------------
Robert J. Gailus
November 27, 1998
- -----------------
Date
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY
NOT BE MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT,
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT.
Right to Purchase up to 25,000
Shares of Common Stock of
DynamicWeb Enterprises, Inc.
No. 10024
DYNAMICWEB ENTERPRISES, INC.
Common Stock Purchase Warrant
DYNAMICWEB ENTERPRISES, INC., a New Jersey corporation (the "Company"),
hereby certifies that, for value received, Robert Gailus, (the "Holder"), or its
successors or registered assigns, is entitled to purchase up to Twenty
Five Thousand (25,000) shares of common stock, par value $0.0001 per share (the
"Common Stock"), of the Company, at an exercise price of $2.63 per share (the
"Purchase Price"), beginning on the date hereof and until the fifth anniversary
of the date hereof (the "Expiration Date"), at which time this Common Stock
Purchase Warrant (the "Warrant") shall expire and the Holder shall have no
further rights hereunder; provided that (1) the Holder agrees to enter into or
execute a subscription agreement in a form reasonably acceptable to the Company
and (2) the Holder meets the reasonable conditions and is subject to the
reasonable terms applicable to other purchasers of the Company's Common Stock.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include DynamicWeb Enterprises, Inc. and
any corporation that shall succeed to or assume the obligations of DynamicWeb
Enterprises, Inc. hereunder.
<PAGE>
(b) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise), which stock or other securities the holder of the Warrant at any
time shall be entitled to receive, or shall have received, on the exercise of
the Warrant, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in replacement of
Common Stock or Other Securities.
(c) The term "Public Offering" refers to an underwritten public
offering of securities of the Company pursuant to an effective registration
statement under the Securities Act covering the offer and sale of such
securities to the public.
(d) The term "Registrable Shares" refers to the Common Stock issued
upon exercise of this Warrant and any shares of Common Stock issued thereon by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. As to
any particular Registrable Share, once issued, it shall cease to be a
Registrable Share when (A) a registration statement with respect to the sale of
such share shall have become effective under the Securities Act and such share
shall have been disposed of in accordance with such registration statement; (B)
it shall become eligible to be disposed of pursuant to Rule 144 (or any
successor provision) under the Securities Act; (C) it shall have been otherwise
transferred, a new certificate for it not bearing a legend restricting further
transfer shall have been delivered by the Company and subsequent disposition of
it shall not require registration or qualification of it under the Securities
Act or similar state law then in effect; or (D) it shall have ceased to be
outstanding.
(e) The term "Registration Statement" refers to any registration
statement of the Company that covers any of the Registrable Shares pursuant to
the provisions of this Agreement, including the prospectus included therein, any
amendment or supplement thereof, including post-effective amendments, and all
exhibits and all material incorporated by reference in such Registration
Statement.
1. Exercise of Warrant.
1.1 Exercise. This Warrant may be exercised in full or in
part or not at all by the Holder hereof by surrender of this Warrant and the
subscription form annexed hereto (duly executed by such Holder), to the Company
at its principal office, accompanied by payment, in cash, or by certified or
official bank check payable to the order of the Company, in the amount obtained
by multiplying (a) the number of shares of Common Stock designated by the Holder
in the subscription form by (b) the Purchase Price.
1.2 Cashless Exercise. In lieu of paying the Purchase Price
in cash when exercising this Warrant, the Holder of this Warrant may elect to
receive shares equal to the value of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with notice of such election, in which event the Company shall issue to
the Holder hereof a number of shares of Common Stock computed using the
following formula:
<PAGE>
Y(A - B)
X = --------
A
Where
X -- The number of shares of Common Stock to be issued
to the Holder of this Warrant.
Y -- The number of shares of Common Stock purchasable
under this Warrant.
A -- The Fair Market Value of one share of the Company's
Common Stock.
B -- The Purchase Price (as adjusted to the date of such
calculations).
For purposes of this Section 1.2, the "Fair Market Value" of
the Common Stock shall mean the average of the closing bid price of the Common
Stock quoted in the over-the-counter market in which the Common Stock is traded
or the closing price quoted on any exchange on which the Common Stock is listed,
whichever is applicable, as published by Bloomberg Professional for the ten (10)
trading days prior to the date of determination of Fair Market Value (or such
shorter period of time during which such stock was traded over-the-counter or on
such exchange). If the Common Stock is not traded on the over-the-counter market
or on an exchange, the Fair Market Value shall be the price per share that the
Company could obtain from a willing buyer for shares of Common Stock sold by the
Company from authorized but unissued shares, as such prices shall be determined
in good faith by the Company's Board of Directors.
1.3 Trustee for Warrant Holders. In the event that a bank or
trust company shall have been appointed as trustee for the Holder of the
Warrant, such bank or trust company shall have all the powers and duties of a
warrant agent appointed pursuant to Section 9 and shall accept, in its own name
for the account of the Company or such successor person as may be entitled
thereto, all amounts otherwise payable to the Company or such successor, as the
case may be, on exercise of this Warrant pursuant to this Section 1. The Company
shall give the Holder of the Warrant notice of the appointment of any trustee
and any change thereof.
2. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of this Warrant, and in any event within ten (10)
days thereafter, the Company at its expense (including the payment by it of any
applicable issue or stamp taxes) will cause to be issued in the name of and
delivered to the Holder hereof, or as such Holder (upon payment by such Holder
of any applicable transfer taxes) may direct, a certificate or certificates for
the number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which such Holder shall be entitled on such exercise, in such
denominations as may be requested by such Holder. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
(or Other Securities) upon the exercise of this Warrant, nor shall it be
<PAGE>
required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of shares of Common Stock
(or Other Securities).
3. No Impairment. The Company will not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, or any other similar voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder of the Warrant against
impairment due to such event.
4. Piggyback Registration.
(a) If, at any time on or prior to the Expiration Date, the
Company proposes to file a registration statement in connection with a Public
Offering of any of its equity securities (other than a registration statement on
Form S-4 or Form S-8, or any form substituting therefor that is suitable for the
registration of the Registrable Shares under the Securities Act (a "Piggyback
Registration Statement")), then the Company shall in each case give written
notice (the "Piggyback Notice") of such proposed filing to all holders of
Registrable Shares still outstanding at least thirty (30) days before the
anticipated filing date of such Piggyback Registration Statement, which
Piggyback Notice shall offer the holders of Registrable Shares the opportunity
to include in such Piggyback Registration Statement such amount of Registrable
Shares as they may request. Each holder of Registrable Shares electing to have
its or his Registrable Shares registered pursuant to this Section 4(a) shall
advise the Company of such election in writing within twenty (20) days after the
date of receipt of the Piggyback Notice, specifying the amount of Registrable
Shares for which registration is requested (the "Piggyback Election"). Subject
to the rights of other stockholders, if any, having demand registration rights,
the Company shall include in any such Piggyback Registration Statement all
Registrable Shares so requested to be included; provided that the Company has
received the Piggyback Election and subject to limitations set forth in Section
4(b) below.
(b) Notwithstanding the foregoing, if the underwriter or
underwriters of any such proposed Public Offering shall be of the opinion that
the total amount or kind of securities held by the holders of Registrable Shares
and any other persons or entities entitled to be included in such Public
Offering would adversely affect the success of such Public Offering, then the
amount of securities to be offered for the accounts of holders of Registrable
Shares shall be reduced pro rata to the extent necessary to reduce the total
amount of securities to be included in such Public Offering to the amount
recommended by the underwriter or underwriters thereof, whereupon the Company
shall only be obligated to register such limited portion (which may be none) of
the Registrable Shares with respect to which such holder has provided a
Piggyback Election. In no event shall the Company be required pursuant to this
Section 4(b) to reduce the amount of securities proposed to be registered by it
for its own account.
<PAGE>
(c) No registration pursuant to a request or requests referred
to in this Section 4 shall be deemed to be a demand upon the Company for
registration under the Securities Act for all or part of the remaining
Registrable Shares (a "Demand Registration").
5. Restriction on Transfer. Any purported Transfer of this Warrant
shall be null and void and of no force or effect, and shall not be recognized by
the Company, unless such Transfer is effected pursuant to an effective
registration statement for such securities under the Securities Act or an
opinion of counsel satisfactory to the Company that registration is not required
under the Securities Act. "Transfer" shall mean any sale, assignment, transfer,
disposition, donation, pledge, bequest, hypothecation, gift, conveyance,
encumbrance or any other disposition or transfer of this Note or any interest or
rights (legal or equitable) therein by any means whatsoever, whether direct or
indirect, absolute or conditional, voluntary or involuntary, by operation of law
(including without limitation, by operation of the laws of descent and
distribution) or otherwise.
6. Merger, Consolidation or Sale. In case of any consolidation of the
Company with, or merger of the Company with, or into, or sale of the Company to,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
surviving corporation formed by such merger, consolidation or sale shall execute
and deliver to the Holder a supplemental warrant agreement providing that the
Holder shall have the right of such merger, consolidation or sale, to receive,
upon exercise of this Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such merger, consolidation or sale by a
Holder of the number of shares of Common Stock of the Company for which such
warrant might have been exercised immediately prior to such merger,
consolidation or sale. Such supplemental warrant agreement shall provide for
adjustments which shall be identical to the adjustments provided in Section 13
hereof. The foregoing provisions of this paragraph shall similarly apply to
successive mergers, consolidations or sales.
7. Register of Warrants. The Company shall maintain, at the principal
office of the Company (or such other office as it may designate by notice to the
Holder hereof), a register for the Warrants, in which the Company shall record
the name and address of the person in whose name a Warrant has been issued, as
well as the name and address of each transferee and each prior owner of such
Warrant.
8. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Warrant Agent. The Company may, by written notice to the registered
Holder of this Warrant, appoint an agent having an office in New York, New York,
for the purpose of issuing Common Stock (or Other Securities) on the exercise of
the Warrant pursuant to Section 1
<PAGE>
and replacing this Warrant pursuant to Section 8, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.
10. Remedies. The Company stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
11. Closing of Books. The Company will at no time close its transfer
books against the Transfer pursuant to Section 5 hereof of any Warrant or of any
shares of Common Stock (or Other Securities) issued or issuable upon the
exercise of any Warrant in any manner which interferes with the timely exercise
of this Warrant.
12. No Rights or Liabilities as a Stockholder. This Warrant shall not
entitle the Holder hereof to any voting rights or other rights as a stockholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the Holder hereof to purchase Common Stock (or Other Securities), and
no mere enumeration herein of the rights or privileges of the Holder hereof,
shall give rise to any liability of such Holder for the Purchase Price or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
13. Anti-Dilution Adjustments. In the event the Company (i) shall pay a
stock dividend or make a distribution to holders of Common Stock of the Company
in shares of Common Stock, (ii) shall subdivide its outstanding shares of Common
Stock, (iii) shall combine its outstanding shares of Common Stock into a smaller
number of shares, or (iv) shall issue by reclassification of its shares of
Common Stock any shares of capital stock of the Company, then additional shares
of Common Stock shall be issued (upon exercise of the Warrant) to the Holder
such that the number of shares owned by the Holder immediately after such action
shall bear the same relation to the total number of shares outstanding
immediately after such action as the number of shares owned by the Holder
immediately prior to such action bore to the total number of shares outstanding
immediately prior to such action. An adjustment made pursuant to this Section 13
shall become effective retroactively immediately after the record date in the
case of a dividend or distribution of Common Stock and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
14. Notices Generally. All notices and other communications from the
Company to the registered Holder of this Warrant shall be mailed by first class
registered or certified mail, postage prepaid, at the address for such Holder as
it appears on the books of the Company or its agent.
15. Miscellaneous. This Warrant and any term hereof may not be changed,
waived, discharged or terminated without the prior written consent of the
Company and the Holder. This
<PAGE>
Warrant shall be construed and enforced in accordance with and governed by the
Business Corporation Act of the State of New Jersey, and the Holder hereof
irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive.
The headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. This Warrant is being
executed as an instrument under seal. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
25th day of November, 1998.
DYNAMICWEB ENTERPRISES , INC.
[Corporate Seal] By: /s/ Steven L. Vanechanos, Jr.
-----------------------------------
Steven L. Vanechanos, Jr.
Chairman of the Board and
Chief Executive Officer
Attest:
By: /s/ Steve Vanechanos, Sr.
-------------------------------
Name: Steve Vanechanos, Sr.
Title: Sec/Treas
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
TO DYNAMICWEB ENTERPRISES, INC.
The undersigned, the Holder of the within Warrant, hereby irrevocably
elects to [CHECK APPLICABLE SUBSECTION]:
____ (a) Exercise the attached Warrant for, and to purchase thereunder,
___________ shares of Common Stock of DYNAMICWEB ENTERPRISES, INC. at
the Purchase Price of _______ per share, and herewith makes payment of
$____________ therefor in cash;
OR
____ (b) Exercise the attached Warrant for ________ shares of Common Stock of
DYNAMICWEB ENTERPRISES, INC. purchasable under the Warrant pursuant to
the cashless exercise provisions of Section 1.2 of such Warrant.
The undersigned hereby represents and warrants that the undersigned is
acquiring such shares for its own account for investment purposes only, and not
for resale or with a view to distribution of such shares or any part thereof.
WARRANT HOLDER:
By: ____________________________________
Name:
(Signature and name must conform
to name of Holder as specified on
the face of the Warrant)
____________________________________
____________________________________
(Address)
____________________________________
(Insert Social Security or Other
Identifying Number of Holder)
Dated: ____________, ____
<PAGE>
SANDS BROTHERS & CO., LTD.
INVESTMENT BANKERS
MEMBER NYSE
90 PARK AVENUE, NEW YORK, N.Y. 10016
(212) 697-5200 Toll Free (800) 866-6116 Fax (212) 681-7947
September 27, 1999
Steven L. Vanechanos, Jr., Chairman & CEO
DynamicWeb Enterprises, Inc.
271 Route 46 West
Building F, Suite 209
Fairfield, New Jersey 07004
Re: Financial Advisory Services
Dear Mr. Vanechanos:
This is to confirm our understanding that Sands Brothers & Co., Ltd.
("Sands Brothers") has been engaged as a financial advisor to DynamicWeb
Enterprises, Inc., its successors, subsidiaries and affiliates (collectively,
the "Company"), with respect to financial advisory, corporate finance and merger
and acquisition matters for the twelve-month period commencing the date hereof.
In connection with its duties hereunder, Sands Brothers shall devote such
business time and attention to matters on which the Company shall request its
services as shall be determined by Sands Brothers in its sole discretion. All
services shall be rendered by Sands Brothers in the New York City area including
Fairfield, New Jersey.
A. Financial Advisory Services
During the term of this agreement, Sands Brothers shall provide the
Company with such regular and customary financial advisory services as are
reasonably requested by the Company, provided that Sands Brothers shall not be
required to undertake duties not reasonably within the scope of the financial
advisory services in which it is generally engaged. In performance of its
duties, Sands Brothers shall provide the Company with the benefits of its best
judgment and efforts. It is understood and acknowledged by the parties that the
value of Sands Brothers' advice is not measurable in a quantitative manner and
Sands Brothers shall be obligated to render advice, upon the request of the
Company, in good faith, as shall be determined by Sands Brothers. Sands
Brothers' duties may include, but will not necessarily be limited to:
(i) advice regarding the formation of corporate goals and their
implementation;
(ii) advice regarding the financial structure of the Company or its
divisions or any programs and projects undertaken by any of the foregoing;
<PAGE>
Mr. Steven L. Vanechanos, Jr., Chairman & CEO
September 27, 1999
Page 2
(iii) advice regarding obtaining financing including bridge financing and
strategic capital; and
(iv) advice regarding corporate organization, personnel and selection of
needed specialty skills.
The Company acknowledges that Sands Brothers and its affiliates are in the
business of providing financial advisory services (of all types contemplated by
this agreement) to others. Nothing herein contained shall be construed to limit
or restrict Sands Brothers or its affiliates in conducting such business with
respect to others or in rendering such advice to others except to the direct
competitors of the Company listed on Exhibit A hereto.
In consideration of such financial advisory services, the Company agrees
to pay Sands Brothers a non-refundable and non-accountable fee of 17,500 shares
of common stock of the Company, 8,750 shares of which shall be issued upon the
execution of this letter and 8,750 shares of which shall be issued upon the
occurrence of an Event (as defined hereinafter). In addition, the Company shall
also issue to Sands Brothers 50,000 five-year warrants to purchase shares of the
Company's common stock at an exercise price of $6.00 per share ("Sands
Warrants"), 25,000 of which shall vest upon execution of this letter and 25,000
of which shall vest upon the occurrence of an Event. The Sands Warrants shall
contain such terms and conditions as are satisfactory in form and substance to
Sands Brothers, the Company and their respective counsel, including, without
limitation, demand and piggy-back registration, anti-dilution provisions and
price protections. The payments referenced in this paragraph shall be in
addition to any other compensation and reimbursement of expenses described
herein.
B. Corporate Finance Matters
Private Placement
The Company hereby grants to Sands Brothers the right, commencing on the
date hereof and continuing for the ninety day period following the completion
and initial dissemination of definitive offering materials in a format
"wrapping" around the Company's reports under the Securities Exchange Act of
1934, as amended (with the right of Sands Brothers to extend such period for an
additional sixty day period), to act as exclusive selling agent for the Company
(except with respect to investors introduced by Trautman Wasserman & Co. with
respect to which Sands Brothers commission shall be 2%) in a private placement
(the "Private Placement") of equity or debt securities of the Company, at a
share price to be mutually agreed upon, to yield aggregate gross proceeds to the
Company of $1-5 million, all to be set forth in a "best efforts" selling
agreement (the "Selling Agreement") with the Company.
As to be more fully set forth in the Selling Agreement, upon the
successful completion of
<PAGE>
Mr. Steven L. Vanechanos, Jr., Chairman & CEO
September 27, 1999
Page 3
the Private Placement, the Company shall:
(a) pay Sands Brothers a commission of seven percent (7%) of any gross
proceeds of the Private Placement with respect to investors located by Sands
Brothers ("Sands Investors"); and
(b) reimburse Sands Brothers for all reasonable accountable expenses
incurred in connection with the Private Placement.
It shall be the Company's obligation to bear all of its expenses in
connection with the proposed Private Placement, including, but not limited to,
the following: printing costs, due diligence related expenses, road show
expenses, issuer's and reasonable placement agent's counsel fees and reasonable
expenses, accounting fees and reasonable blue sky counsel and all related filing
fees, to the extent required. It is agreed that Sands Brothers' counsel shall
perform the required Blue Sky legal services. During the offering period, all
information, material leads and/or sources which the Company believes could
reasonably result in the consummation of the Private Placement shall be
disclosed to Sands Brothers.
In no event shall Sands Brothers be responsible for any of the Company's
fees, costs or expenses and the preparation of the due diligence investigatory
materials. The Company shall reimburse Sands Brothers for any reasonable
out-of-pocket expenses (including, but not limited to, reasonable counsel fees
and expenses) which Sands Brothers may incur in connection with the enforcement
of its rights hereunder.
Anything contained herein to the contrary notwithstanding, Sands Brothers'
obligations to proceed with the Private Placement is conditioned upon Sands
Brothers' continued due diligence investigation of the Company and the Company
shall cooperate with Sands Brothers and its legal counsel in this regard with
respect to such matters.
If the Private Placement is consummated, the Company shall grant Sands
Brothers a right of first refusal to act as placement agent in any proposed
private placement of the Company's securities, other than to the persons or
entities listed on Exhibit B hereto, for a one year period following the
closing.
C. Acquisition Transaction
For purposes of this agreement, the term "Acquisition Transaction" means
(i) any strategic alliance or any merger, consolidation, reorganization or other
business combination pursuant to which the business(es) of a third party are
combined with that of the Company, (ii) the acquisition, directly or indirectly,
by the Company of all or a substantial portion of the assets or common equity of
a third party by way of negotiated purchase or otherwise or (iii) the
acquisition, directly or indirectly, by a third party of all or a substantial
portion of the assets or equity of the Company by way of negotiated purchase or
otherwise.
<PAGE>
Mr. Steven L. Vanechanos, Jr., Chairman & CEO
September 27, 1999
Page 4
In connection with a proposed Acquisition Transaction, Sands Brothers'
advisory services will include the following: (i) assistance in the evaluation
of a third party from a financial point of view, (ii) assistance and advice with
respect to the form and structure of the Acquisition Transaction and the
financing thereof, (iii) conducting discussions and negotiations regarding an
Acquisition Transaction and (iv) providing other related advice and assistance
as the Company may reasonably request in connection with an Acquisition
Transaction.
For purpose of this agreement, "Consideration" means the aggregate value,
whether in cash, securities, assumption of (or purchase subject to) debt or
liabilities (including, without limitation, indebtedness for borrowed money,
pension liabilities and guarantees) or other property, obligations or services,
paid or payable directly or indirectly (in escrow or otherwise) or otherwise
assumed in connection with an Acquisition Transaction. The value of such
Consideration shall be determined as follows:
(a) the value of securities, liabilities, obligations, property and
services shall be the fair market value ascribed in the agreement or if no
such value is ascribed, as the Company and Sands Brothers shall mutually
agree upon at the date of the closing of the Acquisition Transaction; and
(b) the value of indebtedness, including indebtedness assumed, shall be
the face amount thereof.
If the Consideration payable in an Acquisition Transaction includes
contingent payments to be calculated by reference to uncertain future
occurrences, such as future financial or business performance, then any fees of
Sands Brothers relating to such Consideration shall be payable at the time of
the receipt of such Consideration.
In connection with our services, you agree that if, during the period
Sands Brothers is retained by you or, within two years thereafter, an
Acquisition Transaction is consummated with a third party introduced by Sands
Brothers, or the Company enters into a definitive agreement with a third party
introduced by Sands Brothers which at any time thereafter results in an
Acquisition Transaction, you will pay Sands Brothers a transaction fee equal to
5% of the first $3 million of Consideration, 4% of the next $3 million of
Consideration, 3% of the next $3 million of Consideration and 2% of any
additional Consideration; provided, however, if the Company (directly or through
a third party) procures, as the other party to an Acquisition Transaction, any
of those parties listed on Exhibit C hereto, the Company shall pay Sands
Brothers a fee equal to three (3%) percent of the first $9 million of
Consideration and two (2%) percent of any
<PAGE>
Mr. Steven L. Vanechanos, Jr., Chairman & CEO
September 27, 1999
Page 5
additional Consideration, but only in the event Sands Brothers provides advisory
services to the Company at the request of the Company in connection with the
Acquisition Transaction.
For purposes of this Agreement, the consummation of a Private Placement or
an Acquisition Transaction may be referred to herein as an "Event."
D. General
In addition to all other charges payable to Sands Brothers as per the
terms hereof, the Company agrees to reimburse Sands Brothers, upon requests made
from time to time, for all of its reasonable out-of-pocket expenses incurred in
connection with its activities under this agreement.
The Company agrees to indemnify Sands Brothers and related persons in
accordance with the indemnification provisions annexed hereto as Schedule A
which are incorporated herein in their entirety.
This letter, including Schedule A and Exhibits A, B and C, constitutes the
entire understanding of the parties with respect to the subject matter hereof
and may not be altered or amended except in a writing signed by both parties.
This agreement shall be governed by and construed under the laws of the State of
New York without regard to principles of conflicts of law thereof. Neither the
execution and delivery of this letter by the Company nor the consummation of the
transactions contemplated hereby will, directly or indirectly, with or without
the giving of notice or lapse of time, or both: (i) violate any provisions of
the Certificate of Incorporation or By-laws of the Company; or (ii) violate, or
be in conflict with, or constitute a default under, any agreement, lease,
mortgage, debt or obligation of the Company or require the payment, any
pre-payment or other penalty with respect thereto.
<PAGE>
Mr. Steven L. Vanechanos, Chairman & CEO
September __, 1999
Page 6
If the foregoing correctly sets forth the terms of our agreement, kindly
so indicate by signing and returning the enclosed copy of this letter, along
with certificates representing 8,750 shares of Company common stock and warrants
to purchase 25,000 shares of Company common stock as per the terms of this
letter.
SANDS BROTHERS & CO., LTD.
By: /s/ Howard Sterling
------------------------------------
Howard Sterling
Senior V.P. - Corporate Finance
ACCEPTED AND AGREED TO
this 27th day of September, 1999
DYNAMICWEB ENTERPRISES, INC.
By: /s/ Steven L. Vanechanos, Jr.
----------------------------------
Steven L. Vanechanos, Jr.
Chairman & CEO
<PAGE>
SCHEDULE A
INDEMNIFICATION
Recognizing that matters of the type contemplated in this engagement
sometimes result in litigation and that Sands Brothers' role is advisory, the
Company agrees to indemnify and hold harmless Sands Brothers, its affiliates and
their respective officers, directors, employees, agents and controlling persons
(collectively, the "Indemnified Parties"), from and against any losses, claims,
damages and liabilities, joint or several, related to or arising in any manner
out of any transaction, financing, proposal or any other matter (collectively,
the "Matters") contemplated by the engagement of Sands Brothers hereunder, and
will promptly reimburse the Indemnified Parties for all expenses (including
reasonable fees and expenses of legal counsel) as incurred in connection with
the investigation of, preparation for or defense of any pending or threatened
claim related to or arising in any manner out of any Matter contemplated by the
engagement of Sands Brothers hereunder, or any action or proceeding arising
therefrom (collectively, "Proceedings"), whether or not such Indemnified Party
is a formal party to any such Proceeding. Notwithstanding the foregoing, the
Company shall not be liable in respect of any losses, claims, damages,
liabilities or expenses that a court of competent jurisdiction shall have
determined by final judgment resulted primarily from the gross negligence or
willful misconduct of an Indemnified Party. The Company further agrees that it
will not, without the prior written consent of Sands Brothers, settle,
compromise or consent to the entry of any judgment in any pending or threatened
Proceeding in respect of which indemnification may be sought hereunder (whether
or not Sands Brothers or any Indemnified Party is an actual or potential party
to such Proceeding), unless such settlement, compromise or consent includes an
unconditional release of Sands Brothers and each other Indemnified Party
hereunder from all liability arising out of such Proceeding.
The Company agrees that if any indemnification or reimbursement sought
pursuant to this letter were for any reason not to be available to any
Indemnified Party or insufficient to hold it harmless as and to the extent
contemplated by this letter, then the Company shall contribute to the amount
paid or payable by such Indemnified Party in respect of losses, claims, damages
and liabilities in such proportion as is appropriate to reflect the relative
benefits to the Company and its stockholders on the one hand, and Sands Brothers
on the other, in connection with the Matters to which such indemnification or
reimbursement relates or, if such allocation is not permitted by applicable law,
not only such relative benefits but also the relative faults of such parties as
well as any other equitable considerations. It is hereby agreed that the
relative benefits to the Company and/or its stockholders and to Sands Brothers
with respect to Sands Brothers' engagement shall be deemed to be in the same
proportion as (i) the total value paid or received or to be paid or received by
the Company and/or its stockholders pursuant to the Matters (whether or not
consummated) for which Sands Brothers is engaged to render financial advisory
services bears to (ii) the fees paid to Sands Brothers in connection with such
engagement. In no event
<PAGE>
shall the Indemnified Parties contribute or otherwise be liable for an amount in
excess of the aggregate amount of fees actually received by Sands Brothers
pursuant to such engagement (excluding amounts received by Sands Brothers as
reimbursement of expenses).
The Company further agrees that no Indemnified Party shall have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Company for or in connection with Sands Brothers' engagement hereunder except
for losses, claims, damages, liabilities or expenses that a court of competent
jurisdiction shall have determined by final judgment resulted primarily from the
gross negligence or willful misconduct of such Indemnified Party. The indemnity,
reimbursement and contribution obligations of the Company shall be in addition
to any liability which the Company may otherwise have and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company or an Indemnified Party.
The indemnity, reimbursement, and contribution provisions set forth herein
shall remain operative and in full force and effect regardless of (i) any
withdrawal, termination or consummation of or failure to initiate or consummate
any Matter referred to herein, (ii) any investigation made by or on behalf of
any party hereto or any person controlling (within the meaning of Section 15 of
the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange
Act of 1934, as amended) any party hereto, (iii) any termination or the
completion or expiration of this letter or Sands Brothers' engagement and (iv)
whether or not Sands Brothers' shall, or shall not be called upon to, render any
formal or informal advice in the course of such engagement.
<PAGE>
Exhibit A
Waltrip and Associates
<PAGE>
Exhibit B
The Shaar Fund
Cranshire Capital Corp.
Keeway
<PAGE>
Exhibit C
SE, HRBC and QRSI
SPSC and ICCSA
Ariba (through Gailus)
PurchasePro.com
The viaLink Company (IQIQ), SourcingLink.net (SNET) and Waltrip and Associates
Globix Corporation (GBIX) (through Trautman Wasserman)
RMI.net
Verio (through Trautman Wasserman)
Exodus
MCI WorldCom
Navisite (through Trautman Wasserman)
First Data (through Gailus)
Warburg Pincus (through Gailus)
DLJ Sprout (through Gailus)
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY
NOT BE MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT,
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT.
Right to Purchase up to 6,000
Shares of Common Stock of
DynamicWeb Enterprises, Inc.
No. 10020
DYNAMICWEB ENTERPRISES, INC.
Common Stock Purchase Warrant
DYNAMICWEB ENTERPRISES, INC., a New Jersey corporation (the "Company"),
hereby certifies that, for value received, Donner Corp.International, (the
"Holder"), or its successors or registered assigns, is entitled to purchase up
to Six Thousand (6,000) shares of common stock, par value $0.0001 per share (the
"Common Stock"), of the Company, at an exercise price of $5.50 per share (the
"Purchase Price"), beginning on the date hereof and until the fifth anniversary
of the date hereof (the "Expiration Date"), at which time this Common Stock
Purchase Warrant (the "Warrant") shall expire and the Holder shall have no
further rights hereunder; provided that (1) the Holder agrees to enter into or
execute a subscription agreement in a form reasonably acceptable to the Company
and (2) the Holder meets the reasonable conditions and is subject to the
reasonable terms applicable to other purchasers of the Company's Common Stock.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include DynamicWeb Enterprises, Inc. and
any corporation that shall succeed to or assume the obligations of DynamicWeb
Enterprises, Inc. hereunder.
<PAGE>
(b) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise), which stock or other securities the holder of the Warrant at any
time shall be entitled to receive, or shall have received, on the exercise of
the Warrant, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in replacement of
Common Stock or Other Securities.
(c) The term "Public Offering" refers to an underwritten public offering
of securities of the Company pursuant to an effective registration statement
under the Securities Act covering the offer and sale of such securities to the
public.
(d) The term "Registrable Shares" refers to the Common Stock issued upon
exercise of this Warrant and any shares of Common Stock issued thereon by way of
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular Registrable Share, once issued, it shall cease to be a Registrable
Share when (A) a registration statement with respect to the sale of such share
shall have become effective under the Securities Act and such share shall have
been disposed of in accordance with such registration statement; (B) it shall
become eligible to be disposed of pursuant to Rule 144 (or any successor
provision) under the Securities Act; (C) it shall have been otherwise
transferred, a new certificate for it not bearing a legend restricting further
transfer shall have been delivered by the Company and subsequent disposition of
it shall not require registration or qualification of it under the Securities
Act or similar state law then in effect; or (D) it shall have ceased to be
outstanding.
(e) The term "Registration Statement" refers to any registration
statement of the Company that covers any of the Registrable Shares pursuant to
the provisions of this Agreement, including the prospectus included therein, any
amendment or supplement thereof, including post-effective amendments, and all
exhibits and all material incorporated by reference in such Registration
Statement.
1. Exercise of Warrant.
1.1 Exercise. This Warrant may be exercised in full or in part
or not at all by the Holder hereof by surrender of this Warrant and the
subscription form annexed hereto (duly executed by such Holder), to the Company
at its principal office, accompanied by payment, in cash, or by certified or
official bank check payable to the order of the Company, in the amount obtained
by multiplying (a) the number of shares of Common Stock designated by the Holder
in the subscription form by (b) the Purchase Price.
1.2 Cashless Exercise. In lieu of paying the Purchase Price in
cash when exercising this Warrant, the Holder of this Warrant may elect to
receive shares equal to the value of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with notice of such election, in which event the Company shall issue to
the Holder hereof a number of shares of Common Stock computed using the
following formula:
<PAGE>
Y(A - B)
X = --------
A
Where
X -- The number of shares of Common Stock to be issued to
the Holder of this Warrant.
Y -- The number of shares of Common Stock purchasable under
this Warrant.
A -- The Fair Market Value of one share of the Company's Common
Stock.
B -- The Purchase Price (as adjusted to the date of such
calculations).
For purposes of this Section 1.2, the "Fair Market Value" of the
Common Stock shall mean the average of the closing bid price of the Common Stock
quoted in the over-the-counter market in which the Common Stock is traded or the
closing price quoted on any exchange on which the Common Stock is listed,
whichever is applicable, as published by Bloomberg Professional for the ten (10)
trading days prior to the date of determination of Fair Market Value (or such
shorter period of time during which such stock was traded over-the-counter or on
such exchange). If the Common Stock is not traded on the over-the-counter market
or on an exchange, the Fair Market Value shall be the price per share that the
Company could obtain from a willing buyer for shares of Common Stock sold by the
Company from authorized but unissued shares, as such prices shall be determined
in good faith by the Company's Board of Directors.
1.3 Trustee for Warrant Holders. In the event that a bank or
trust company shall have been appointed as trustee for the Holder of the
Warrant, such bank or trust company shall have all the powers and duties of a
warrant agent appointed pursuant to Section 9 and shall accept, in its own name
for the account of the Company or such successor person as may be entitled
thereto, all amounts otherwise payable to the Company or such successor, as the
case may be, on exercise of this Warrant pursuant to this Section 1. The Company
shall give the Holder of the Warrant notice of the appointment of any trustee
and any change thereof.
2. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of this Warrant, and in any event within ten (10)
days thereafter, the Company at its expense (including the payment by it of any
applicable issue or stamp taxes) will cause to be issued in the name of and
delivered to the Holder hereof, or as such Holder (upon payment by such Holder
of any applicable transfer taxes) may direct, a certificate or certificates for
the number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which such Holder shall be entitled on such exercise, in such
denominations as may be requested by such Holder. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
(or Other Securities) upon the exercise of this Warrant, nor shall it be
<PAGE>
required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of shares of Common Stock
(or Other Securities).
3. No Impairment. The Company will not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, or any other similar voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder of the Warrant against
impairment due to such event.
4. Piggyback Registration.
(a) If, at any time on or prior to the Expiration Date, the
Company proposes to file a registration statement in connection with a Public
Offering of any of its equity securities (other than a registration statement on
Form S-4 or Form S-8, or any form substituting therefor that is suitable for the
registration of the Registrable Shares under the Securities Act (a "Piggyback
Registration Statement")), then the Company shall in each case give written
notice (the "Piggyback Notice") of such proposed filing to all holders of
Registrable Shares still outstanding at least thirty (30) days before the
anticipated filing date of such Piggyback Registration Statement, which
Piggyback Notice shall offer the holders of Registrable Shares the opportunity
to include in such Piggyback Registration Statement such amount of Registrable
Shares as they may request. Each holder of Registrable Shares electing to have
its or his Registrable Shares registered pursuant to this Section 4(a) shall
advise the Company of such election in writing within twenty (20) days after the
date of receipt of the Piggyback Notice, specifying the amount of Registrable
Shares for which registration is requested (the "Piggyback Election"). Subject
to the rights of other stockholders, if any, having demand registration rights,
the Company shall include in any such Piggyback Registration Statement all
Registrable Shares so requested to be included; provided that the Company has
received the Piggyback Election and subject to limitations set forth in Section
4(b) below.
(b) Notwithstanding the foregoing, if the underwriter or
underwriters of any such proposed Public Offering shall be of the opinion that
the total amount or kind of securities held by the holders of Registrable Shares
and any other persons or entities entitled to be included in such Public
Offering would adversely affect the success of such Public Offering, then the
amount of securities to be offered for the accounts of holders of Registrable
Shares shall be reduced pro rata to the extent necessary to reduce the total
amount of securities to be included in such Public Offering to the amount
recommended by the underwriter or underwriters thereof, whereupon the Company
shall only be obligated to register such limited portion (which may be none) of
the Registrable Shares with respect to which such holder has provided a
Piggyback Election. In no event shall the Company be required pursuant to this
Section 4(b) to reduce the amount of securities proposed to be registered by it
for its own account.
<PAGE>
(c) No registration pursuant to a request or requests referred to
in this Section 4 shall be deemed to be a demand upon the Company for
registration under the Securities Act for all or part of the remaining
Registrable Shares (a "Demand Registration").
5. Restriction on Transfer. Any purported Transfer of this Warrant shall
be null and void and of no force or effect, and shall not be recognized by the
Company, unless such Transfer is effected pursuant to an effective registration
statement for such securities under the Securities Act or an opinion of counsel
satisfactory to the Company that registration is not required under the
Securities Act. "Transfer" shall mean any sale, assignment, transfer,
disposition, donation, pledge, bequest, hypothecation, gift, conveyance,
encumbrance or any other disposition or transfer of this Note or any interest or
rights (legal or equitable) therein by any means whatsoever, whether direct or
indirect, absolute or conditional, voluntary or involuntary, by operation of law
(including without limitation, by operation of the laws of descent and
distribution) or otherwise.
6. Merger, Consolidation or Sale. In case of any consolidation of the
Company with, or merger of the Company with, or into, or sale of the Company to,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
surviving corporation formed by such merger, consolidation or sale shall execute
and deliver to the Holder a supplemental warrant agreement providing that the
Holder shall have the right of such merger, consolidation or sale, to receive,
upon exercise of this Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such merger, consolidation or sale by a
Holder of the number of shares of Common Stock of the Company for which such
warrant might have been exercised immediately prior to such merger,
consolidation or sale. Such supplemental warrant agreement shall provide for
adjustments which shall be identical to the adjustments provided in Section 13
hereof. The foregoing provisions of this paragraph shall similarly apply to
successive mergers, consolidations or sales.
7. Register of Warrants. The Company shall maintain, at the principal
office of the Company (or such other office as it may designate by notice to the
Holder hereof), a register for the Warrants, in which the Company shall record
the name and address of the person in whose name a Warrant has been issued, as
well as the name and address of each transferee and each prior owner of such
Warrant.
8. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Warrant Agent. The Company may, by written notice to the registered
Holder of this Warrant, appoint an agent having an office in New York, New York,
for the purpose of issuing Common Stock (or Other Securities) on the exercise of
the Warrant pursuant to Section 1
<PAGE>
and replacing this Warrant pursuant to Section 8, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.
10. Remedies. The Company stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
11. Closing of Books. The Company will at no time close its transfer
books against the Transfer pursuant to Section 5 hereof of any Warrant or of any
shares of Common Stock (or Other Securities) issued or issuable upon the
exercise of any Warrant in any manner which interferes with the timely exercise
of this Warrant.
12. No Rights or Liabilities as a Stockholder. This Warrant shall not
entitle the Holder hereof to any voting rights or other rights as a stockholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the Holder hereof to purchase Common Stock (or Other Securities), and
no mere enumeration herein of the rights or privileges of the Holder hereof,
shall give rise to any liability of such Holder for the Purchase Price or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
13. Anti-Dilution Adjustments. In the event the Company (i) shall pay a
stock dividend or make a distribution to holders of Common Stock of the Company
in shares of Common Stock, (ii) shall subdivide its outstanding shares of Common
Stock, (iii) shall combine its outstanding shares of Common Stock into a smaller
number of shares, or (iv) shall issue by reclassification of its shares of
Common Stock any shares of capital stock of the Company, then additional shares
of Common Stock shall be issued (upon exercise of the Warrant) to the Holder
such that the number of shares owned by the Holder immediately after such action
shall bear the same relation to the total number of shares outstanding
immediately after such action as the number of shares owned by the Holder
immediately prior to such action bore to the total number of shares outstanding
immediately prior to such action. An adjustment made pursuant to this Section 13
shall become effective retroactively immediately after the record date in the
case of a dividend or distribution of Common Stock and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
14. Notices Generally. All notices and other communications from the
Company to the registered Holder of this Warrant shall be mailed by first class
registered or certified mail, postage prepaid, at the address for such Holder as
it appears on the books of the Company or its agent.
15. Miscellaneous. This Warrant and any term hereof may not be changed,
waived, discharged or terminated without the prior written consent of the
Company and the Holder. This
<PAGE>
Warrant shall be construed and enforced in accordance with and governed by the
Business Corporation Act of the State of New Jersey, and the Holder hereof
irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive.
The headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. This Warrant is being
executed as an instrument under seal. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
30th day of September, 1999.
DYNAMICWEB ENTERPRISES, INC.
[Corporate Seal] By: /s/ Steven L. Vanechanos, Jr.
-----------------------------
Steven L. Vanechanos, Jr.
Chairman of the Board and
Chief Executive Officer
Attest:
By: /s/ Steve Vanechanos, Sr.
-------------------------
Name: Steve Vanechanos, Sr.
Title: Sec/Treas
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
TO DYNAMICWEB ENTERPRISES, INC.
The undersigned, the Holder of the within Warrant, hereby irrevocably
elects to [CHECK APPLICABLE SUBSECTION]:
____ (a) Exercise the attached Warrant for, and to purchase thereunder,
___________ shares of Common Stock of DYNAMICWEB ENTERPRISES, INC.
at the Purchase Price of _______ per share, and herewith makes
payment of $____________ therefor in cash;
OR
____ (b) Exercise the attached Warrant for ________ shares of Common Stock
of DYNAMICWEB ENTERPRISES, INC. purchasable under the Warrant
pursuant to the cashless exercise provisions of Section 1.2 of
such Warrant.
The undersigned hereby represents and warrants that the undersigned is
acquiring such shares for its own account for investment purposes only, and not
for resale or with a view to distribution of such shares or any part thereof.
WARRANT HOLDER:
By:
-------------------------------
Name:
(Signature and name must
conform to name of Holder
as specified on the face of
the Warrant)
------------------------------
------------------------------
(Address)
------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
Dated: ____________, ____
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") dated as of October 1, 1999,
between James Conners, residing at _____________________ ("Employee"), and
DynamicWeb Enterprises, Inc., a corporation having its offices at 271 Route 46
West, Building F, Suite 209, Fairfield, New Jersey ("the Company").
WHEREAS, the parties hereto desire to enter into this Agreement in
order to set forth the terms pursuant to which the Company will employ the
Employee and the Employee will serve as employee of the Company.
NOW THEREFORE, in consideration of the foregoing and the mutual
agreements set forth herein, the parties hereto, intending to be legally bound,
agree as follows:
1. CONDITIONS PRECEDENT
This Agreement shall be contingent upon and shall not take effect until
it and the terms contained herein are ratified and approved by the Company's
Board of Directors.
2. TERM
The employment of Employee shall commence on the date that the
Company's Board of Director approves and ratifies this fully-executed Agreement
and end on September 30, 2002 ("Employment Period"). Upon the expiration of the
Employment Period, the term shall be automatically renewed from year to year for
a period of one (1) year ("Renewal Period" or "Employment Period"), unless
either the Company or the Employee gives the other party ninety (90) days notice
before the expiration of the Employment Period or any Renewal Period that it
elects to terminate this Agreement.
3. POSITION AND DUTIES
Employee shall serve as President of the Company reporting to the Chief
Executive Officer. Employee shall fulfill such general management duties and
responsibilities as are consistent with the position of President, and as are
assigned to him from time to time by the Chief Executive Officer. In his
capacity as President, the Employee shall endeavor to, and shall be given all
necessary support (including financial and administrative support) by the
Company to: (1) provide strategic planning and direction for the Company; (2)
oversee all Company departments; (3) recruit personnel for all departments; (4)
actively promote securities offerings; and (5) outreach to network of contacts.
Employee shall use his best efforts to advance the best interests of the Company
and perform his duties hereunder diligently, faithfully and in accordance with
his highest professional standards and, more particularly, the standards as
outlined in the attached memorandum made part hereof as Exhibit A. The Employee
shall devote his entire working time, attention and energies to the business of
the
<PAGE>
Company and shall assume and perform such further reasonable responsibilities
and duties as may be assigned from time to time.
4. AGREEMENT TO ABIDE BY POST-EMPLOYMENT TERMS OF STERLING COMMERCE
EMPLOYEE AGREEMENT
Employee agrees to abide by the surviving restrictions and limitations
contained in the Sterling Commerce Employee Agreement ("Sterling Agreement") and
acknowledges receipt of certain correspondence from the Company relating to
same, which was dated August 5, 1997 and which is attached hereto and made part
hereof as Exhibit B.
5. COMPENSATION AND BENEFITS
A. BASE SALARY
As compensation for the Employee's services hereunder during the
Employment Period, the Company shall pay the Employee a base salary at the
annual rate of One Hundred Eighty Thousand Dollars ($180,000) subject to an
automatic Twenty Thousand Dollar ($20,000) escalator following each completed
year of employment with the Company ("Base Salary") throughout the Employment
Period. Any Base Salary payable hereunder shall be paid in regular intervals in
accordance with the Company's payroll practices, but no less frequently than
twice each month.
B. INCENTIVE COMPENSATION
Employee shall be eligible to participate in any incentive compensation
plan that may hereafter be adopted by the Company for its executives and key
management employees.
C. STOCK OPTIONS
Employee may purchase the noted amount of common stock over the course
of the Employment Period in accordance with the following schedule: 100,000
shares over three (3) years (34,000 in Year 1; 33,000 in Year 2; and 33,000 in
Year 3) vesting at the end of each year at a price of $3.00 per share. Nothing
contained herein shall in any way alter, change, effect or modify any prior
agreement between the Company and Employee regarding the grant, purchase or
vesting of options to purchase shares of common stock of the Company.
D. MEDICAL BENEFITS AND INSURANCE
(a) Employee shall be eligible for sick leave, life, major
medical, hospitalization, dental and disability insurance on the same terms and
conditions as such benefits are provided for or made available to other
executive or key management personnel.
2
<PAGE>
(b) The Company shall pay the premiums on a term life
insurance policy written by an insurer which agrees to pay the principal amount
of $150,000 in the event of Employee's death during the Employment Period.
Selection of the insurer and the terms of the policy shall be at the sole
discretion of the Company. Employee shall have no ownership interest in the
policy, but shall have the right to assign the benefits under the policy. The
Company shall have no obligation beyond payment of premiums. Upon termination of
employment and providing the policy so permits, Employee may continue coverage
at Employee's expense.
F. COMMUTING EXPENSES
During the Employment Period, the Company agrees to reimburse Employee
for one weekly plane trip to Ohio/Michigan, provided that the airline ticket
must be purchased at least seven (7) days in advance and must include a Saturday
overnight stay.
G. HOUSING
During the Employment Period, the Employee shall be provided with use
of living accommodations in New Jersey in a rental home or apartment of the
Employee's choice at a monthly rent of up to One Thousand Dollars ($1000.00).
During the period of use of the housing and unless included within the cost of
the rent, the Employee shall be responsible to pay all utilities, including
heat, electricity and water.
H. AUTOMOBILE
During the Employment Period, the Employee shall be provided with the
use of a leased automobile with a leased value of up to Five Hundred Dollars
($500.00) per month.
I. EMPLOYEE PENSION PLAN
Employee shall be eligible to participate in any Employee Pension Plan
that may hereafter be adopted by the Company for its executives and key
management personnel.
6. TERMINATION
(a) The Company shall have the right during the Employment Period to
terminate the employment of Employee for Cause, which for purposes of this
Agreement shall mean:
(i) Employee's death;
(ii) Employee's legal incapacity if, as a result of the
Employee's incapacity due to physical or mental illness or injury, the Employee
shall have been unable to perform adequately his duties as herein provided for
one-hundred and eighty (180) consecutive days in any twelve (12) month period;
3
<PAGE>
(iii) Employee's conviction of, or plea of nolo contendere, to
a felony or crime involving moral turpitude;
(iv) Employee's commission of an act of personal dishonesty or
breach of fiduciary duty involving personal profit in connection with Employee's
employment by the Company;
(v) Employee's commission of an act which the Board of
Directors by a vote of at least two-thirds (2/3) of all the directors shall have
found in good faith to have involved willful misconduct or gross negligence on
the part of the Employee in the conduct of his duties hereunder;
(vi) Employee's breach of his material obligations under the
Agreement ("Material Breach");
(vii) Employee's failure to abide by the post-employment
limitations, restrictions and prohibitions contained in the Sterling Agreement;
or
(viii) Habitual absenteeism, chronic alcoholism or any other
form of addiction on the part of the Employee that prevents him from performing
the essential functions of his position with or without a reasonable
accommodation.
(b) If the employment of the Employee is terminated for Cause, all
rights of the Employee under this Agreement shall cease as of the effective date
of the termination, and except as expressly provided herein or as may be
provided under any employee benefit plan, Employee shall not be entitled to any
additional compensation, bonus, stock options, perquisites, or benefits, except
those required to be paid under federal or state laws or regulations.
(c) The Employee may terminate this Agreement at any time and for any
reason, including but not limited to Good Reason, upon ninety (90) days prior
written notice to the Company. For purposes of this Agreement, "Good Reason"
shall mean: (i) a material reduction in the Employee's duties or authority by
the Company; (ii) a breach by the Company of its material obligations under this
Agreement; or (iii) a material reduction in the Employee's compensation or
benefits. Employee agrees that, before terminating the Agreement for Good
Reason, he shall provide the Company with written notice of the basis of his
claim that Good Reason exists to terminate the Agreement and provide the Company
with a reasonable opportunity to cure.
4
<PAGE>
7. COMPENSATION UPON TERMINATION
(a) In the event of the termination of the Employee's employment by the
Company for Cause the Company shall pay to the Employee his Base Salary and
accrued incentive pay and options, if any, through the date of his termination,
and the Employee shall have no further entitlement to any other compensation,
bonuses, perquisites or benefits from the Company.
(b) In the event that the Employee's employment is terminated by the
Company during the Employment Period other than for Cause, except under a change
in control circumstance (see 7.c & 7.d which shall supercede this paragraph),
the Company shall continue to pay to the Employee his Base Salary, incentive
compensation and options for the balance of the Employment Period (as if such
termination had not occurred).
(c) In the event that the Employee voluntarily resigns his employment
during the Employment Period following a change in control of the Company
through merger or acquisition, the following provisions shall prevail: (1) all
stock options provided for in this Agreement, in addition to all grants of stock
options made to Employee pursuant to any other prior agreement between the
parties, will immediately vest; (2) the price of the stock options provided for
in Section 5(c) hereunder shall be adjusted from $3.00 per share to $1.00 per
share; and (3) the Company shall pay a severance benefit to Employee in the form
of continuation of Base Salary for the period of six (6) months if Employee's
resignation occurs within one (1) year of the date of the change in control of
the Company or twelve (12) months salary continuation in the event Employee's
resignation occurs after the one year anniversary of the change in control of
the Company.
(d) In the event that the Employee's employment is terminated by the
Company during the Employment Period other than for Cause, following a change in
control of the Company through merger or acquisition, the following provisions
shall prevail: (1) all stock options provided for in this Agreement, in addition
to all grants of stock options made to Employee pursuant to any other prior
agreement between the parties, will immediately vest; (2) the price of the stock
options provided for in Section 5(c) hereunder shall be adjusted from $3.00 per
share to $1.00 per share; and (3) the Company shall pay a severance benefit to
Employee in the form of continuation of Base Salary for the period of
twenty-four (24) months following such termination
8. NON-DISCLOSURE OF PROPRIETARY/CONFIDENTIAL INFORMATION
Employee acknowledges that during the Employment Period, he will have
access to information about the Company and that his employment with the Company
shall bring him into close contact with many confidential affairs of the
Company, and their respective customers, including without limitation,
information regarding the Company's management, methods, operating techniques,
procedures and methods, forms, sales methods, development and service methods
and business techniques, customer and
5
<PAGE>
product information, customer and prospective customer lists, employee lists,
information relating to the organizational structure of the Company and the
skills, duties and responsibilities of the employees, training manuals and
procedures, hardware systems, software programs, information relating to the
prior, current or contemplated products or services offered by the Company,
including without limitation, their specifications, the methods in which they
are offered or provided and their price or cost, or the prior, current or
contemplated systems, products, services and processes used or contemplated for
use by the Company; and information that Employee has a reasonable basis to know
was accepted by the Company from any third party under obligations of
confidentiality ("Confidential Information"). Such Confidential Information is
not readily available to the public and was developed at great effort and
expense.
In recognition of the foregoing, during and after the Employment Period
and until such time as the Confidential Information is generally published or is
available to the general public other than through Employee's unauthorized
disclosure, regardless of the reason for any termination of employment, the
Employee shall not, without the written consent of the Company, disclose or use
or make available for anyone to use (except in the course of his employment or
in furtherance of the business of the Company) any Confidential Information and
the Employee shall during the continuance of his employment by the Company use
his best efforts to prevent the unauthorized publication or misuse of any
Confidential Information, provided, however, that Confidential Information shall
not include any information (i) known generally to the public (other than as a
result of unauthorized disclosure by the Employee); or (ii) developed by the
Employee without violating any of the provisions of this Agreement.
9. RETURN OF CONFIDENTIAL INFORMATION
The Employee agrees that upon termination of his employment with the
Company for any reason, he will immediately return to the Company all
Confidential Information within his possession or under his control, and shall
not at any time thereafter reproduce or copy same.
10. ASSIGNMENT OF INVENTIONS
(a) The Employee agrees that all inventions, designs, improvements,
writings, and discoveries initiated, made or conceived during the Employment
Period, whether solely by the Employee or in conjunction with others, that
pertain to the business conducted by the Company, its affiliates and
subsidiaries shall be the exclusive property of, and he hereby assigns all of
his interest therein to, the Company or its designee. All rights and obligations
hereunder shall continue in full force and effect after the termination of
employment or the expiration of the Employment Period and shall be binding on
the Employee's personal representatives or assigns. The Employee shall promptly
disclose to the Company all such inventions, designs, improvements, writings and
discoveries and shall, at the sole expense of the Company, assist the Company or
its designee in obtaining patents and copyrights therefor that are deemed
suitable for United States or foreign letters patent or copyrights and shall
execute all documents and do all things necessary to obtain letters patent,
copyrights, trademarks and trade names or to
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otherwise vest the Company with full and exclusive title thereto, and protect
the same against infringements by others.
(b) The parties explicitly acknowledge and agree that notwithstanding
anything herein to the contrary, the Employee shall have and retain the right to
use, without payment of any royalty, ideas, concepts, expressions, techniques,
know-how, skills and experience possessed, developed or acquired by him prior to
or during the Employment Period, and the right to market, develop or otherwise
use any services or products, including without limitation any that may be
similar to or competitive with services or products of the Company, provided,
however, that the exercise of such rights shall not result in a disclosure or
incorporation in any end product by the Employee of any specific item of
Confidential Information.
11. NON-COMPETITION DURING THE EMPLOYMENT PERIOD
During the Employment Period, Employee shall not directly or
indirectly, individually or on behalf of persons not now parties to this
Agreement, or as a partner, stockholder, director, officer, principal, agent,
employee, or in any other capacity or relationship, engage in any business or
employment, or aid or endeavor to assist any business or legal entity, which
competes with the Company within or outside of the United States, including but
not limited to, entering into or engaging in any business that competes with the
Company; soliciting customers, business, patronage or orders for, or sell, any
products or services in competition with the Company; diverting or taking away
from the Company any customers, business, patronage or orders or attempting to
do so; or promoting, assisting, financially or otherwise, any person, firm,
association, partnership, corporation or other legal entity engaged in any
business that competes with the Company. Employee acknowledges the
reasonableness of this provision and the reasonableness of the geographic area
and duration which are a part of this provision. Provided that the Employee's
obligations under this Paragraph shall cease in the event: (1) Employee's
employment is terminated by the Company for other than Cause; or (2) Employee
resigns for Good Reason. In the event Employee is terminated for Cause or if he
resigns his employment for other than a Good Reason, the obligations of this
Paragraph shall continue in force for the remainder of the Employment Period.
12. NON-SOLICITATION OF CUSTOMERS
Employee agrees that during the Employment Period and for a period of
one (1) year following the expiration of the Employment Period or any Renewal
Period, the Employee will not, on his behalf or on behalf of any other person,
firm, corporation, partnership, association, or other legal entity, call on,
divert, take away, solicit or in any way assist in the solicitation of any of
the Employer's customers or prospective customers.
13. NON-SOLICITATION OF FORMER EMPLOYEES
Employee agrees that during the Employment Period and for a period of
one (1) year following the expiration of the Employment Period or any Renewal
Period, the
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Employee will not, on his behalf or on behalf of any other person, firm,
corporation, partnership, association, or other legal entity, divert, take away,
solicit or attempt to solicit any of the current employees of the Company.
14. SPECIFIC REMEDIES
(a) If during the course of the Employment Period or any Renewal Period
the Employee commits a breach of any of the provisions of this Agreement, such
violation shall be deemed to be grounds for termination for Cause and the
Company shall have the right to have such provisions specifically enforced by
any court having equity jurisdiction, it being acknowledged and agreed that any
such breach will cause irreparable injury to the Company and that money damages
will not provide an adequate remedy to the company, provided however that
nothing herein shall be construed as prohibiting the Company from pursuing any
other remedies available to the Company for such breach or threatened breach,
including the recovery of damages from the Employee.
(b) If following the Employment Period the Employee commits a breach of
any of the post-employment restrictions of this Agreement, the Company shall
have the right to have such provisions specifically enforced by any court having
equity jurisdiction, it being acknowledged and agreed that any such breach will
cause irreparable injury to the company and that money damages will not provide
an adequate remedy to the Company, provided however that nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies available
to the Company for such breach of threatened breach, including the recovery of
damages from the Employee.
15. UNIQUE AND EXTRAORDINARY SERVICES
Employee hereby acknowledges that his services are unique and
extraordinary, and are not readily replaceable.
16. COOPERATION FOLLOWING TERMINATION
Employee agrees that, following notice of termination of his
employment, he shall cooperate fully with the Company in all matters relating to
the completion of his pending work on behalf of the Company and the orderly
transition of such work to such other employees as the Company may designate.
Employee further agrees that during and following the termination of his
employment he shall cooperate fully with the Company as to any and all claims,
controversies, disputes or complaints over which he has any knowledge or that
may relate to him or his employment relationship with the Company. Such
cooperation includes, but is not limited to, providing the Company with all
information known to him related to such claims, controversies, disputes or
complaints and appearing and giving testimony in any forum.
Following the conclusion of the Employment Period, the Company agrees
that it will pay Employee at a rate of $100.00 per hour plus expenses for any
services rendered on its behalf pursuant to this Paragraph.
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17. GOVERNING LAW
Except as otherwise explicitly noted, this Agreement shall be governed
by and construed in accordance with the laws of the State of New Jersey (without
giving effect to conflict of law).
18. INTEGRATION
This Agreement, including the Exhibits attached hereto and made part
hereof, constitutes the entire understanding between the parties hereto relating
to the subject matter hereof, superseding all negotiations, prior discussions,
preliminary agreements and agreements related to the subject matter hereof made
prior to the date hereof.
19. MODIFICATIONS AND AMENDMENTS
This Agreement may be modified or amended only by an instrument in
writing executed by the parties hereto and approved in writing by a majority of
the Board of Directors. Such modification or amendment will not become effective
until such approval has been given.
20. SEVERABILITY
If any of the terms or conditions of this Agreement shall be declared
void or unenforceable by any court or administrative body of competent
jurisdiction, such term or condition shall be deemed severable from the
remainder of this Agreement, and the other terms and conditions of this
Agreement shall continue to be valid and enforceable.
21. NOTICE
For the purpose of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given as of the date delivered if delivered in person or by telecopy
or if mailed, by registered mail, return receipt requested, postage prepaid,
addressed to Employee as follows:
---------------------------------
---------------------------------
---------------------------------
If to the Company:
DynamicWeb Enterprises Inc.
271 Route 46 West
Fairfield, New Jersey 07004
ATTENTION: Steven Vanechanos
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of changes of address shall be
effective upon receipt.
22. WAIVER
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The observation or performance of any condition or obligation imposed
upon the Employee hereunder may be waived only upon the written consent of the
Board of Directors of the Company. Such waiver shall be limited to the terms
thereof and shall not constitute a waiver of any other condition or obligation
of the Employee under this Agreement.
23. ASSIGNMENT
Neither party shall have the right to assign any rights or obligations
under this Agreement without the prior written approval of the other party.
24. HEADINGS
The headings have been inserted for convenience only and are not to be
considered when construing the provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first written upon.
DYNAMICWEB ENTERPRISES
By /s/ Steven L. Vanechanos, Jr.
-------------------------------
Name: Steven L. Vanechanos, Jr.
Title: Chief Executive Officer
/s/ James Conners
-------------------------------
JAMES CONNERS
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eB2B Commerce, Inc.
29 West 38th Street
New York, NY 10018
November 12, 1999
Steven L. Vanechanos, Jr.
Chief Executive Officer & Chairman
DynamicWeb Enterprises, Inc.
271 Route 46 West
Building F, Suite 209
Fairfield, NJ 07004
Re: Loan Agreement
Dear Mr. Vanechanos:
The purpose of this letter is to set forth the understandings (the
"Agreement") between eB2B Commerce, Inc. ("eCom") and DynamicWeb Enterprises,
Inc. (the "Company" or the "undersigned") pursuant to which eCom will provide
loans to the Company in contemplation of a merger between eCom and the Company,
as provided for in the Letter Agreement between the parties, dated November 10,
1999 (the "Letter Agreement"). Unless otherwise defined herein, the terms used
in this Agreement shall have the meanings assigned in the Letter Agreement.
1 Interim Loan.
1.1 First Loan. Upon the signing of this Agreement, eCom agrees to make a
loan to the Company in the amount of $250,000 (the "First Loan"). The First Loan
shall accrue simple interest at 8% per year which will be payable when the First
Loan becomes due. The First Loan will have a term maturing on the four month
anniversary of the date of the Letter Agreement ("Maturity Date"), except that,
in the event the Transaction does not close as a result of eCom choosing not to
proceed to close the Transaction, for any reason, the new Maturity Date will
become the first anniversary of the date of the Letter Agreement.
In the event the First Loan is not repaid within 30 days of the Maturity
Date, the First Loan, together with interest, will be convertible, at the
discretion of eCom, into a number of shares of the Company's common stock
determined by multiplying such amount by a fraction, the numerator of which is
the First Loan amount plus accrued interest, and the denominator of which is
$.25.
1.2 Second Loan. Upon the earlier of (i) the initial closing of eCom's
private placement offering of its securities, or (ii) December 1, 1999, eCom
agrees to make an additional loan to the Company in the amount of $250,000 (the
"Second Loan"). The Second Loan shall accrue simple interest at 8% per year
which will be payable when the Second Loan becomes due. The Second Loan will
have a term maturing on the Maturity Date, except that, in the event the
Transaction does not close as a result of eCom choosing not to proceed to close
the Transaction, for any reason, the new Maturity Date will become the first
anniversary of the date of the Letter Agreement.
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In the event the Second Loan is not repaid within 30 days of the Maturity
Date, the Second Loan, together with interest, will be convertible, at the
discretion of eCom, into a number of shares of the Company's common stock
determined by multiplying such amount by a fraction, the numerator of which is
the Second Loan amount plus accrued interest, and the denominator of which is
$.25.
1.3 Third Loan. Upon the earlier of (i) the receipt by eCom of gross
proceeds of at least $15 million from eCom's private placement offering, or (ii)
December 15,1999, eCom agrees to make an additional loan to the Company in the
amount of $1.5 million (the "Third Loan"). The Third Loan will accrue simple
interest at the rate of 8% per year which will be payable when the Third Loan
becomes due. If the Third Loan is made, the First Loan, the Second Loan and the
Third Loan will be aggregated into a single loan of $2 million (the "Interim
Loan"). The Interim Loan will have a term maturing on the Maturity Date, except
that, in the event the Transaction does not close as a result of eCom choosing
not to proceed to close the Transaction, for any reason, the new Maturity Date
will become the first anniversary of the date of the Letter Agreement.
In the event the Interim Loan is not repaid within 30 days of the Maturity
Date, the Interim Loan, together with interest, will be convertible, at the
discretion of eCom, into a number of shares of the Company's common stock
determined by multiplying such amount by a fraction, the numerator of which is
the Interim Loan amount plus accrued interest, and the denominator of which is
$.25.
Each such loan shall be evidenced by a promissory note (the "Promissory
Note") substantially in the form of the sample note attached hereto as Exhibit
A.
1.4 Conversion. In the event eCom exercises its right to convert the
Promissory Notes, as provided herein, into shares of the Company's common stock
("Shares"), eCom will deliver written notice to the Company of its intention to
convert the Promissory Notes into Shares ("Notice"). The Company will issue and
deliver a certificate representing the Shares acquired by eCom upon the exercise
of eCom's right to convert, as soon as practicable after receipt of the Notice.
2 Warrants. As additional consideration for the loans by eCom, the Company shall
issue to eCom the following: (i) upon the execution of the Letter Agreement,
warrants to purchase 2,500,000 shares of the Company's Common Stock, and (ii)
upon the execution of the Definitive Agreement, warrants to purchase an
additional 5,000,000 shares of the Company's Common Stock ("Warrants"). The
Warrants will be exercisable at a price of $2.00 per share for a period of 120
days from the date of their issuance, provided however, that in the event eCom
terminates the Letter Agreement, fails to execute a Definitive Agreement or
fails to receive gross proceeds of $15 million from its private placement
offering, then all the Warrants will be forfeited by eCom. The Warrants must be
exercised in increments of 2,500,000 Warrants. The Warrants will be subject to a
Warrant Agreement executed simultaneously with this Agreement.
3 Computation of Interest.
3.1 Base Interest Rate. Subject to subsections 3.2 and 3.3 below, the
outstanding principal amount shall bear interest at the rate of 8% per annum.
3.2 Penalty Interest. In the event a Promissory Note is not repaid on the
Maturity Date, the rate of interest applicable to the unpaid Principal Amount
shall be adjusted to 13% per annum from the date of default until repayment;
provided, that in no event shall the interest rate exceed the Maximum Rate
provided in Section 3.3 below.
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3.3 Maximum Rate. In the event that it is determined that, under the laws
relating to usury applicable to the Company or the indebtedness evidenced by
this Note ("Applicable Usury Laws"), the interest charges and fees payable by
the Company in connection herewith or in connection with any other document or
instrument executed and delivered in connection herewith shall cause the
effective interest rate applicable to the indebtedness evidenced by this Note to
exceed the maximum rate allowed by law (the "Maximum Rate"), then such interest
shall be recalculated for the period in question and any excess over the Maximum
Rate paid with respect to such period shall be credited, without further
agreement or notice, to the Principal Amount outstanding thereunder to reduce
said balance by such amount with the same force and effect as though the Company
had specifically designated such extra sums to be so applied to principal and
eCom had agreed to accept such extra payment(s) as a premium-free prepayment.
All such deemed prepayments shall be applied to the principal balance payable at
maturity. In no event shall any agreed-to or actual exaction as consideration
for any Promissory Note exceed the limits imposed or provided by Applicable
Usury Laws in the jurisdiction in which the Company is resident applicable to
the use or custody of money or to forbearance in seeking its collection in the
jurisdiction in which the Company is resident.
4 Representations and Warranties of the Company. The Company hereby represents
and warrants to eCom as follows:
4.1 Corporate Existence. The Company is a corporation, duly organized and
validly existing, in good standing under the laws of its state of incorporation,
and is duly authorized and qualified under all applicable laws, regulations,
ordinances and orders of public authorities to carry on its business in any
state or county where such qualification is necessary and to own and hold
property.
4.2 Corporate Power. The Company has full right, power and authority to
enter into and perform this Agreement, and each Promissory Note (collectively,
the "Documents"), and to grant all of the rights granted and agreed to be
granted pursuant to this Agreement and the Documents.
4.3 Authorization. The Company has taken all necessary corporate action to
authorize the execution, delivery and performance of this Agreement and the
other Documents, including but not limited to, all necessary corporate action
required by its articles of incorporation and bylaws.
4.4 No Conflict, Violation or Consent Required. The execution, delivery
and performance of, and the compliance with the provisions of each of the
Documents do not and will not violate any provision of an applicable law or any
provision of the Company's articles of incorporation and bylaws, and will not
conflict with, require consent under any provision of, result in any breach of
any of the terms, conditions or provisions of, result in the creation or
imposition of any lien, charge or encumbrance upon any of the properties or
assets of the Company pursuant to the terms of, or constitute a default under or
conflict with, any other indenture, contract, mortgage, deed of trust or other
agreement or instrument to which the Company is a party or by which the Company
is bound. The Company shall not enter into other contractual obligations which
will restrict or impair its obligations under this Agreement or any other
Document.
4.5 Binding Effect. This Agreement and each Promissory Note when executed
and delivered by the Company, will constitute, valid obligations of the Company
and are binding and enforceable against the Company in accordance with their
respective terms, except as hereafter may be limited by applicable bankruptcy,
insolvency, reorganization, or similar laws affecting the enforcement of
creditor's rights and the availability of specific performance.
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5 Covenants of the Company.
5.1 Negative Covenants. The Company covenants and agrees that, so long as
any Promissory Note shall be outstanding, it will perform the obligations set
forth in this Section 5.1:
5.1.1 Liquidation, Dissolution. The Company will not liquidate or
dissolve, consolidate with, or merge into or with, any other corporation or
other entity (other than eCom), except that any wholly-owned subsidiary may
merge with another wholly-owned subsidiary or with the Company (so long as the
Company is the surviving corporation and no Event of Default shall occur as a
result thereof) except that, in the event the Transaction does not close as a
result of eCom choosing not to proceed to close the Transaction, for any reason,
then this Section shall be null and void and of no further effect;
5.1.2 Sales of Assets. The Company will not sell, transfer, lease or
otherwise dispose of, or grant options, warrants or other rights with respect
to, all or a substantial part of its properties or assets to any person or
entity, provided that this Section 5.1.2 shall not restrict any disposition made
in the ordinary course of business and consisting of
5.1.2.1 capital goods which are obsolete or have no remaining
useful life; or
5.1.2.2 finished goods inventories,
except that, in the event the Transaction does not close as a result of eCom
choosing not to proceed to close the Transaction, for any reason, then this
Section shall be null and void and of no further effect.
5.1.3 Redemptions. The Company will not redeem or repurchase any
outstanding equity securities of the Company, except for (i) repurchases of
unvested or restricted shares of Common Stock at cost from employees,
consultants or members of the Board of Directors pursuant to repurchase options
of the Company (A) currently outstanding or (B) hereafter entered into pursuant
to a stock option plan or restricted stock plan approved by the Company's Board
of Directors or (ii) rescission offers necessary or appropriate to address
violations of applicable securities laws;
5.1.4 Indebtedness. The Company will hereafter not create, incur,
assume or suffer to exist, contingently or otherwise, any indebtedness which is
not expressly subordinated in right of payment to the Promissory Notes;
5.1.5 Negative Pledge. The Company will not hereafter create, incur,
assume or suffer to exist any mortgage, pledge, hypothecation, assignment,
security interest, encumbrance, lien (statutory or other), preference, priority
or other security agreement or preferential arrangement of any kind or nature
whatsoever (including any conditional sale or other title retention agreement
and any financing lease) (each, a "Lien") upon any of its property, revenues or
assets, whether now owned or hereafter acquired, except:
5.1.5.1 Liens granted to secure indebtedness incurred to
finance the acquisition (whether by purchase or capitalized lease) of tangible
assets, but only on the assets acquired with the proceeds of such indebtedness;
5.1.5.2 Liens for taxes, assessments or other governmental
charges or levies not at the time delinquent or thereafter payable without
penalty or being contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with GAAP shall have been set aside on its
books;
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5.1.5.3 Liens of carriers, warehousemen, mechanics, material
men and landlords incurred in the ordinary course of business for sums not
overdue or being contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with GAAP shall have been set aside on its
books;
5.1.5.4 Liens (other than Liens arising under the Employee
Retirement Income Security Act of 1974, as amended, or Section 412(n) of the
Internal Revenue Code of 1986, as amended) incurred in the ordinary course of
business in connection with workers' compensation, unemployment insurance or
other forms of governmental insurance or benefits, or to secure performance of
tenders, statutory obligations, leases and contracts (other than for borrowed
money) entered into in the ordinary course of business or to secure obligations
on surety or appeal bonds; and
5.1.5.5 Judgment Liens in existence less than 30 days after
the entry thereof or with respect to which execution has been stayed.
5.1.6 Investments. The Company will not purchase, own, invest in or
otherwise acquire, directly or indirectly, any stock or other securities or make
or permit to exist any investment or capital contribution or acquire any
interest whatsoever in any other person or entity or permit to exist any loans
or advances for such purposes except for investments in direct obligations of
the United States of America or any agency thereof, obligations guaranteed by
the United States of America and certificates of deposit or other obligations of
any bank or trust company organized under the laws of the United States or any
state thereof and having capital and surplus of at least $500,000,000; provided,
however, that nothing contained in this Section 5.1.6 shall preclude the Company
from making acquisitions, organizing subsidiaries, or entering into joint
ventures or other business arrangements for the purpose of expanding its
business.
5.1.7 Use of Interim Loan Proceeds. The Company will not use the
proceeds from the Interim Loan for any purposes other than working capital of
the Company.
5.1.8 Transactions with Affiliates. The Company will not enter into
any transaction, including, without limitation, the purchase, sale, lease or
exchange of property, real or personal, the purchase or sale of any security,
the borrowing or lending of any money, or the rendering of any service, with any
person or entity affiliated with the Company (including officers, directors and
shareholders owning 3% or more of the Company's outstanding capital stock),
except in the ordinary course of and pursuant to the reasonable requirements of
its business and upon fair and reasonable terms not less favorable than would be
obtained in a comparable arms-length transaction with any other person or entity
not affiliated with the Company and, where the transaction is valued at in
excess of $50,000, with the prior consent of eCom.
5.1.9 Dividends. The Company will not declare or pay any cash
dividends or distributions on its outstanding capital stock.
5.1.10 Issuance of Securities. The Company may issue shares of
capital stock in the ordinary course of business; provided, however, in no event
shall the Company's issued and outstanding capital stock exceed 5,400,000 shares
of common stock on a fully diluted basis. Notwithstanding the foregoing, in the
event the Transaction does not close as a result of eCom choosing not to proceed
to close the Transaction, for any reason, then this Section shall be null and
void and of no further effect.
6 Events of Default.
6.1 The term "Event of Default" shall mean any of the events set forth in
this Section 6:
6.1.1 Non-Payment of Obligations. The Company shall default in the
payment of the principal or accrued interest of any Promissory Note as and when
the same shall become due and payable, whether by acceleration or otherwise,
after five (5) days.
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6.1.2 Non-Performance of Negative Covenants. The Company shall
default in the due observance or performance of any covenant set forth in
Section 5.1, and remains as such for a period of ten (10) days after written
notice thereof shall have been given to the Company by eCom.
6.1.3 Bankruptcy, Insolvency, etc. The Company shall:
6.1.3.1 admit in writing its inability to pay its debts as
they become due;
6.1.3.2 apply for, consent to, or acquiesce in, the
appointment of a trustee, receiver, sequestrator or other custodian for the
Company or any of its property, or make a general assignment for the benefit of
creditors;
6.1.3.3 in the absence of such application, consent or
acquiesce in, permit or suffer to exist the appointment of a trustee, receiver,
sequestrator or other custodian for the Company or for any part of its property;
6.1.3.4 permit or suffer to exist the commencement of any
bankruptcy, reorganization, debt arrangement or other case or proceeding under
any bankruptcy or insolvency law, or any dissolution, winding up or liquidation
proceeding, in respect of the Company, and, if such case or proceeding is not
commenced by the Company or converted to a voluntary case, such case or
proceeding shall be consented to or acquiesced in by the Company or shall result
in the entry of an order for relief; or
6.1.3.5 take any corporate or other action authorizing, or in
furtherance of, any of the foregoing.
6.1.4 Failure to give eCom First Refusal. The Company shall default
in the event the Company breaches the provisions of Section 7 below.
6.1.5 Cross-Default. The Company shall default in the payment when
due of any amount payable under any other obligation of the Company for money
borrowed in excess of $50,000.
6.1.6 Cross-Acceleration. Any senior debt or any other indebtedness
of the Company in an aggregate principal amount exceeding $50,000 (i) shall be
duly declared to be or shall become due and payable prior to the stated maturity
thereof or (ii) shall not be paid as and when the same becomes due and payable
including any applicable grace period.
6.2 Action if Bankruptcy. If any Event of Default described in Sections
6.1.4.1 through 6.1.4.5 shall occur, the outstanding principal amount of the
Promissory Notes and all other obligations hereunder shall automatically be and
become immediately due and payable, without notice or demand.
6.3 Action if Other Event of Default. If any Event of Default (other than
any Event of Default described in Sections 6.1.4.1 through 6.1.4.5) shall occur
for any reason, whether voluntary or involuntary, and be continuing, and remains
as such for a period of ten (10) days after written notice thereof shall have
been given to the Company by eCom, eCom may, upon notice to the Company, declare
all or any portion of the outstanding principal amount of the Promissory Notes,
together with interest accrued thereon, to be due and payable and any or all
other obligations hereunder to be due and payable, whereupon the full unpaid
principal amount hereof, such accrued interest and any and all other such
obligations which shall be so declared due and payable shall be and become
immediately due and payable, without further notice, demand, or presentment.
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7 eCom's Right of First Refusal.
7.1 If the Company receives or applies for from an unaffiliated person or
entity a bona fide offer (for the purpose of this Section 7, an "Offer") to
incur or create any indebtedness, including any refinancings or financings
involving the sale of the Company's capital stock, which Offer the Company
desires to accept, the Company shall deliver written notice (for the purpose of
this Section 7, the "Offer Notice") to eCom setting forth all the terms and
conditions of the Offer, including the aggregate financing amount, proposed
closing date, terms and the name and address of the proposed lender and/or
investor. No Offer Notice will be effective under this Section 7 if it is
received by eCom on a date fewer than thirty (30) days prior to the proposed
closing date of the proposed financing, except that, in the event the
Transaction does not close as a result of eCom choosing not to proceed to close
the Transaction, for any reason, then this Section 7 shall be null and void and
of no further effect.
7.2 Within twenty-five (25) days after receiving the Offer Notice, eCom
may, by written notice to the Company, elect to conduct the transaction with the
Company, at the price and time and on terms and conditions not less favorable to
the Company than those contained in the Offer and not less than the full amount
of the proposed financing.
7.3 If the eCom fails to elect to exercise its rights under Section 7.2,
the Company may, at any time within (but not after) forty (40) days after the
expiration of the twenty five (25) day exercise period referred to in Section
7.2, accept the proposed financing offer on the terms and conditions contained
in the Offer.
7.4 The failure of the Company to comply with this Section 7, shall be
deemed an event of default and treated as such in accordance with Section 6.
8 Indemnification.
8.1 The undersigned acknowledges that the undersigned understands the
meaning and legal consequences of the representations and warranties contained
in Section 4 hereof, and agrees to indemnify and hold harmless eCom and each
incorporator, officer, director, partner, employee, agent, and controlling
person of each thereof, past, present or future, from and against any and all
loss, damage or liability due to or arising out of a breach of any such
representation or warranty.
9 Transferability. Neither this Agreement, nor any interest of the undersigned
herein, shall be assignable or transferable by the undersigned in whole or in
part except by operation of law.
10 Construction. The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement.
11 Confidentiality. The Company hereby acknowledges and agrees that this
Agreement is confidential, and that its terms and contents shall not be
disclosed to any person other than through a press release of eCom, except as
may be required by securities laws applicable to the Company.
12 Payment of Expenses. Each of the parties hereto shall pay all expenses and
disbursements incurred by its officers, employees, attorneys, accountants,
financial advisers and other agents and representatives in connection with this
Agreement and the performance of its obligations hereunder.
7
<PAGE>
13 Notices. Any notices required or permitted to be given to, or served upon,
any party hereto pursuant to this Agreement shall be sufficiently given or
served if sent to such party by registered or certified mail or facsimile,
addressed to it at its address, as set forth below, or to such other address as
it shall designate by written notice to the other parties addressed as follows:
If to the Company: Copy to:
Steven L. Vanechanos, Jr. Sarah Hewitt, Esq.
Chief Executive Officer Brown Raysman Millstein Felder
DynamicWeb Enterprises, Inc. & Steiner LLP
271 Route 46 West 120 West 45th Street
Building F, Suite 209 New York, New York 10036
Fairfield, New Jersey 07004 Fax: (212) 840-2429
Fax: (973)
If to eCom: Copy to:
Peter Fiorillo Jack Hughes, Esq.
Chief Executive Officer Moskowitz Altman & Hughes LLP
eB2B Commerce, Inc. 11 East 44th Street
29 West 38th Street Suite 504
New York, New York 10018 New York, New York 10017
Fax: (212) 868-0910 Fax: (212) 697-2992
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.
14 Counterparts. This Agreement may be executed in any number of counterparts
and each counterpart shall constitute an original instrument, but all such
separate counterparts shall constitute only one and the same instrument.
15 Entire Agreement. This Agreement, the Promissory Notes and the Warrants
constitute the entire agreement between the parties hereto and supersedes all
prior agreements, understandings and arrangements, oral or written, between the
parties hereto with respect to the subject matter hereof.
16 Amendments and Waivers. This Agreement may not be modified or amended except
by an instrument or instruments in writing signed by the party against whom
enforcement of any such modification or agreement is sought. Any party hereto
may, by an instrument in writing, waive compliance by the other parties with any
term or provision of this Agreement to be performed or complied with by such
other parties hereto. The waiver by any party hereto of a breach of any term or
provision of this Agreement shall not be construed as a waiver of any subsequent
breach.
17 Assignment. This Agreement is personal in nature and none of the parties
hereto shall, without the written consent of the others, assign or transfer its
rights or obligations hereunder to another company or person, except as herein
expressly provided or permitted.
8
<PAGE>
18 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York. Sections 5-1401 and 5-1402 of
the General Obligations Law of the State of New York shall apply to the
Promissory Notes and the Company hereby waives any right to stay or dismiss on
the basis of forum non conveniens any action or proceeding brought before the
courts of the State of New York sitting in New York County or of United States
of America for the Southern District of New York and hereby submits to the
jurisdiction of such courts.
19 Additional Documents. The Company shall at eCom's request, from time to time,
at the Company's sole cost and expense, execute, re-execute, deliver and
redeliver any and all documents, and do and perform such other and further acts,
as may reasonably be required by eCom to enable eCom to preserve and protect
eCom's rights and remedies under this Agreement or granted by law and to carry
out and effect the intents and purposes of this Agreement.
20 Waiver of Jury Trial. ECOM AND THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH,
THIS AGREEMENT OR ANY OTHER DOCUMENT OR INSTRUMENT EXECUTED AND DELIVERED IN
CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN), OR ACTIONS OF ECOM OR THE COMPANY. THIS PROVISION
IS A MATERIAL INDUCEMENT FOR ECOM'S ENTERING INTO THIS AGREEMENT.
Please indicate your agreement to the terms set forth herein by executing
the enclosed copy of this Agreement. This Agreement shall be null and void if it
has not been executed by all parties and returned to eCom before 5:00 p.m., New
York time, on November 12, 1999, whereupon a check or wire transfer for $250,000
will be immediately delivered.
THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK
9
<PAGE>
Very truly yours,
eB2B Commerce, Inc.
By: /s/ Peter Fiorillo
-------------------------------------
Peter Fiorillo
Chief Executive Officer
ACKNOWLEDGED AND AGREED TO:
This 12th day of November, 1999
DynamicWeb Enterprises, Inc.
By: /s/ Steven L. Vanechanos, Jr.
------------------------------------
Steven L. Vanechanos, Jr.
Chief Executive Officer
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY
NOT BE MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT,
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT.
Right to Purchase up to 7,500
Shares of Common Stock of
DynamicWeb Enterprises, Inc.
No. 10023
DYNAMICWEB ENTERPRISES, INC.
Common Stock Purchase Warrant
DYNAMICWEB ENTERPRISES, INC., a New Jersey corporation (the "Company"),
hereby certifies that, for value received, Denis Clark, (the "Holder"), or its
successors or registered assigns, is entitled to purchase up to Seven Thousand
Five Hundred (7,500) shares of common stock, par value $0.0001 per share (the
"Common Stock"), of the Company, at an exercise price of $4.44 per share (the
"Purchase Price"), beginning on the date hereof and until the fifth anniversary
of the date hereof (the "Expiration Date"), at which time this Common Stock
Purchase Warrant (the "Warrant") shall expire and the Holder shall have no
further rights hereunder; provided that (1) the Holder agrees to enter into or
execute a subscription agreement in a form reasonably acceptable to the Company
and (2) the Holder meets the reasonable conditions and is subject to the
reasonable terms applicable to other purchasers of the Company's Common Stock.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include DynamicWeb Enterprises, Inc. and
any corporation that shall succeed to or assume the obligations of DynamicWeb
Enterprises, Inc. hereunder.
<PAGE>
(b) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise), which stock or other securities the holder of the Warrant at any
time shall be entitled to receive, or shall have received, on the exercise of
the Warrant, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in replacement of
Common Stock or Other Securities.
(c) The term "Public Offering" refers to an underwritten public offering
of securities of the Company pursuant to an effective registration statement
under the Securities Act covering the offer and sale of such securities to the
public.
(d) The term "Registrable Shares" refers to the Common Stock issued upon
exercise of this Warrant and any shares of Common Stock issued thereon by way of
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular Registrable Share, once issued, it shall cease to be a Registrable
Share when (A) a registration statement with respect to the sale of such share
shall have become effective under the Securities Act and such share shall have
been disposed of in accordance with such registration statement; (B) it shall
become eligible to be disposed of pursuant to Rule 144 (or any successor
provision) under the Securities Act; (C) it shall have been otherwise
transferred, a new certificate for it not bearing a legend restricting further
transfer shall have been delivered by the Company and subsequent disposition of
it shall not require registration or qualification of it under the Securities
Act or similar state law then in effect; or (D) it shall have ceased to be
outstanding.
(e) The term "Registration Statement" refers to any registration
statement of the Company that covers any of the Registrable Shares pursuant to
the provisions of this Agreement, including the prospectus included therein, any
amendment or supplement thereof, including post-effective amendments, and all
exhibits and all material incorporated by reference in such Registration
Statement.
1. Exercise of Warrant.
1.1 Exercise. This Warrant may be exercised in full or in part
or not at all by the Holder hereof by surrender of this Warrant and the
subscription form annexed hereto (duly executed by such Holder), to the Company
at its principal office, accompanied by payment, in cash, or by certified or
official bank check payable to the order of the Company, in the amount obtained
by multiplying (a) the number of shares of Common Stock designated by the Holder
in the subscription form by (b) the Purchase Price.
1.2 Cashless Exercise. In lieu of paying the Purchase Price in
cash when exercising this Warrant, the Holder of this Warrant may elect to
receive shares equal to the value of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with notice of such election, in which event the Company shall issue to
the Holder hereof a number of shares of Common Stock computed using the
following formula:
<PAGE>
Y(A - B)
X = --------
A
Where
X -- The number of shares of Common Stock to be issued to
the Holder of this Warrant.
Y -- The number of shares of Common Stock purchasable under
this Warrant.
A -- The Fair Market Value of one share of the Company's Common
Stock.
B -- The Purchase Price (as adjusted to the date of such
calculations).
For purposes of this Section 1.2, the "Fair Market Value" of the
Common Stock shall mean the average of the closing bid price of the Common Stock
quoted in the over-the-counter market in which the Common Stock is traded or the
closing price quoted on any exchange on which the Common Stock is listed,
whichever is applicable, as published by Bloomberg Professional for the ten (10)
trading days prior to the date of determination of Fair Market Value (or such
shorter period of time during which such stock was traded over-the-counter or on
such exchange). If the Common Stock is not traded on the over-the-counter market
or on an exchange, the Fair Market Value shall be the price per share that the
Company could obtain from a willing buyer for shares of Common Stock sold by the
Company from authorized but unissued shares, as such prices shall be determined
in good faith by the Company's Board of Directors.
1.3 Trustee for Warrant Holders. In the event that a bank or
trust company shall have been appointed as trustee for the Holder of the
Warrant, such bank or trust company shall have all the powers and duties of a
warrant agent appointed pursuant to Section 9 and shall accept, in its own name
for the account of the Company or such successor person as may be entitled
thereto, all amounts otherwise payable to the Company or such successor, as the
case may be, on exercise of this Warrant pursuant to this Section 1. The Company
shall give the Holder of the Warrant notice of the appointment of any trustee
and any change thereof.
2. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of this Warrant, and in any event within ten (10)
days thereafter, the Company at its expense (including the payment by it of any
applicable issue or stamp taxes) will cause to be issued in the name of and
delivered to the Holder hereof, or as such Holder (upon payment by such Holder
of any applicable transfer taxes) may direct, a certificate or certificates for
the number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which such Holder shall be entitled on such exercise, in such
denominations as may be requested by such Holder. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
(or Other Securities) upon the exercise of this Warrant, nor shall it be
<PAGE>
required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of shares of Common Stock
(or Other Securities).
3. No Impairment. The Company will not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, or any other similar voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder of the Warrant against
impairment due to such event.
4. Piggyback Registration.
(a) If, at any time on or prior to the Expiration Date, the
Company proposes to file a registration statement in connection with a Public
Offering of any of its equity securities (other than a registration statement on
Form S-4 or Form S-8, or any form substituting therefor that is suitable for the
registration of the Registrable Shares under the Securities Act (a "Piggyback
Registration Statement")), then the Company shall in each case give written
notice (the "Piggyback Notice") of such proposed filing to all holders of
Registrable Shares still outstanding at least thirty (30) days before the
anticipated filing date of such Piggyback Registration Statement, which
Piggyback Notice shall offer the holders of Registrable Shares the opportunity
to include in such Piggyback Registration Statement such amount of Registrable
Shares as they may request. Each holder of Registrable Shares electing to have
its or his Registrable Shares registered pursuant to this Section 4(a) shall
advise the Company of such election in writing within twenty (20) days after the
date of receipt of the Piggyback Notice, specifying the amount of Registrable
Shares for which registration is requested (the "Piggyback Election"). Subject
to the rights of other stockholders, if any, having demand registration rights,
the Company shall include in any such Piggyback Registration Statement all
Registrable Shares so requested to be included; provided that the Company has
received the Piggyback Election and subject to limitations set forth in Section
4(b) below.
(b) Notwithstanding the foregoing, if the underwriter or
underwriters of any such proposed Public Offering shall be of the opinion that
the total amount or kind of securities held by the holders of Registrable Shares
and any other persons or entities entitled to be included in such Public
Offering would adversely affect the success of such Public Offering, then the
amount of securities to be offered for the accounts of holders of Registrable
Shares shall be reduced pro rata to the extent necessary to reduce the total
amount of securities to be included in such Public Offering to the amount
recommended by the underwriter or underwriters thereof, whereupon the Company
shall only be obligated to register such limited portion (which may be none) of
the Registrable Shares with respect to which such holder has provided a
Piggyback Election. In no event shall the Company be required pursuant to this
Section 4(b) to reduce the amount of securities proposed to be registered by it
for its own account.
<PAGE>
(c) No registration pursuant to a request or requests referred to
in this Section 4 shall be deemed to be a demand upon the Company for
registration under the Securities Act for all or part of the remaining
Registrable Shares (a "Demand Registration").
5. Restriction on Transfer. Any purported Transfer of this Warrant shall
be null and void and of no force or effect, and shall not be recognized by the
Company, unless such Transfer is effected pursuant to an effective registration
statement for such securities under the Securities Act or an opinion of counsel
satisfactory to the Company that registration is not required under the
Securities Act. "Transfer" shall mean any sale, assignment, transfer,
disposition, donation, pledge, bequest, hypothecation, gift, conveyance,
encumbrance or any other disposition or transfer of this Note or any interest or
rights (legal or equitable) therein by any means whatsoever, whether direct or
indirect, absolute or conditional, voluntary or involuntary, by operation of law
(including without limitation, by operation of the laws of descent and
distribution) or otherwise.
6. Merger, Consolidation or Sale. In case of any consolidation of the
Company with, or merger of the Company with, or into, or sale of the Company to,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
surviving corporation formed by such merger, consolidation or sale shall execute
and deliver to the Holder a supplemental warrant agreement providing that the
Holder shall have the right of such merger, consolidation or sale, to receive,
upon exercise of this Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such merger, consolidation or sale by a
Holder of the number of shares of Common Stock of the Company for which such
warrant might have been exercised immediately prior to such merger,
consolidation or sale. Such supplemental warrant agreement shall provide for
adjustments which shall be identical to the adjustments provided in Section 13
hereof. The foregoing provisions of this paragraph shall similarly apply to
successive mergers, consolidations or sales.
7. Register of Warrants. The Company shall maintain, at the principal
office of the Company (or such other office as it may designate by notice to the
Holder hereof), a register for the Warrants, in which the Company shall record
the name and address of the person in whose name a Warrant has been issued, as
well as the name and address of each transferee and each prior owner of such
Warrant.
8. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Warrant Agent. The Company may, by written notice to the registered
Holder of this Warrant, appoint an agent having an office in New York, New York,
for the purpose of issuing Common Stock (or Other Securities) on the exercise of
the Warrant pursuant to Section 1
<PAGE>
and replacing this Warrant pursuant to Section 8, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.
10. Remedies. The Company stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
11. Closing of Books. The Company will at no time close its transfer
books against the Transfer pursuant to Section 5 hereof of any Warrant or of any
shares of Common Stock (or Other Securities) issued or issuable upon the
exercise of any Warrant in any manner which interferes with the timely exercise
of this Warrant.
12. No Rights or Liabilities as a Stockholder. This Warrant shall not
entitle the Holder hereof to any voting rights or other rights as a stockholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the Holder hereof to purchase Common Stock (or Other Securities), and
no mere enumeration herein of the rights or privileges of the Holder hereof,
shall give rise to any liability of such Holder for the Purchase Price or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
13. Anti-Dilution Adjustments. In the event the Company (i) shall pay a
stock dividend or make a distribution to holders of Common Stock of the Company
in shares of Common Stock, (ii) shall subdivide its outstanding shares of Common
Stock, (iii) shall combine its outstanding shares of Common Stock into a smaller
number of shares, or (iv) shall issue by reclassification of its shares of
Common Stock any shares of capital stock of the Company, then additional shares
of Common Stock shall be issued (upon exercise of the Warrant) to the Holder
such that the number of shares owned by the Holder immediately after such action
shall bear the same relation to the total number of shares outstanding
immediately after such action as the number of shares owned by the Holder
immediately prior to such action bore to the total number of shares outstanding
immediately prior to such action. An adjustment made pursuant to this Section 13
shall become effective retroactively immediately after the record date in the
case of a dividend or distribution of Common Stock and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
14. Notices Generally. All notices and other communications from the
Company to the registered Holder of this Warrant shall be mailed by first class
registered or certified mail, postage prepaid, at the address for such Holder as
it appears on the books of the Company or its agent.
15. Miscellaneous. This Warrant and any term hereof may not be changed,
waived, discharged or terminated without the prior written consent of the
Company and the Holder. This
<PAGE>
Warrant shall be construed and enforced in accordance with and governed by the
Business Corporation Act of the State of New Jersey, and the Holder hereof
irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive.
The headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. This Warrant is being
executed as an instrument under seal. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
19th day of November, 1999.
DYNAMICWEB ENTERPRISES , INC.
[Corporate Seal] By: /s/ Steven L. Vanechanos, Jr.
------------------------------
Steven L. Vanechanos, Jr.
Chairman of the Board and
Chief Executive Officer
Attest:
By: /s/ Steve Vanechanos, Sr.
-----------------------------
Name: Steve Vanechanos, Sr.
Title: Sec/Treas
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
TO DYNAMICWEB ENTERPRISES, INC.
The undersigned, the Holder of the within Warrant, hereby irrevocably
elects to [CHECK APPLICABLE SUBSECTION]:
____ (a) Exercise the attached Warrant for, and to purchase thereunder,
___________ shares of Common Stock of DYNAMICWEB ENTERPRISES,
INC. at the Purchase Price of _______ per share, and herewith
makes payment of $____________ therefor in cash;
OR
____ (b) Exercise the attached Warrant for ________ shares of Common
Stock of DYNAMICWEB ENTERPRISES, INC. purchasable under the
Warrant pursuant to the cashless exercise provisions of
Section 1.2 of such Warrant.
The undersigned hereby represents and warrants that the undersigned is
acquiring such shares for its own account for investment purposes only, and not
for resale or with a view to distribution of such shares or any part thereof.
WARRANT HOLDER:
By:
----------------------------
Name:
(Signature and name must
conform to name of Holder
as specified on the face of
the Warrant)
------------------------------
------------------------------
(Address)
------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
Dated: ____________, ____
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY
NOT BE MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT,
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT.
Right to Purchase up to 30,000
Shares of Common Stock of
DynamicWeb Enterprises, Inc.
No. 10021
DYNAMICWEB ENTERPRISES, INC.
Common Stock Purchase Warrant
DYNAMICWEB ENTERPRISES, INC., a New Jersey corporation (the "Company"),
hereby certifies that, for value received, Peter Baxter, (the "Holder"), or his
successors or registered assigns, is entitled to purchase up to Thirty Thousand
(30,000) shares of common stock, par value $0.0001 per share (the "Common
Stock"), of the Company, at an exercise price of $6.00 per share (the "Purchase
Price"), beginning on the date hereof and until the fifth anniversary of the
date hereof (the "Expiration Date"), at which time this Common Stock Purchase
Warrant (the "Warrant") shall expire and the Holder shall have no further rights
hereunder; provided that (1) the Holder agrees to enter into or execute a
subscription agreement in a form reasonably acceptable to the Company and (2)
the Holder meets the reasonable conditions and is subject to the reasonable
terms applicable to other purchasers of the Company's Common Stock.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include DynamicWeb Enterprises, Inc. and
any corporation that shall succeed to or assume the obligations of DynamicWeb
Enterprises, Inc. hereunder.
<PAGE>
(b) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise), which stock or other securities the holder of the Warrant at any
time shall be entitled to receive, or shall have received, on the exercise of
the Warrant, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in replacement of
Common Stock or Other Securities.
(c) The term "Public Offering" refers to an underwritten public
offering of securities of the Company pursuant to an effective registration
statement under the Securities Act covering the offer and sale of such
securities to the public.
(d) The term "Registrable Shares" refers to the Common Stock issued
upon exercise of this Warrant and any shares of Common Stock issued thereon by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. As to
any particular Registrable Share, once issued, it shall cease to be a
Registrable Share when (A) a registration statement with respect to the sale of
such share shall have become effective under the Securities Act and such share
shall have been disposed of in accordance with such registration statement; (B)
it shall become eligible to be disposed of pursuant to Rule 144 (or any
successor provision) under the Securities Act; (C) it shall have been otherwise
transferred, a new certificate for it not bearing a legend restricting further
transfer shall have been delivered by the Company and subsequent disposition of
it shall not require registration or qualification of it under the Securities
Act or similar state law then in effect; or (D) it shall have ceased to be
outstanding.
(e) The term "Registration Statement" refers to any registration
statement of the Company that covers any of the Registrable Shares pursuant to
the provisions of this Agreement, including the prospectus included therein, any
amendment or supplement thereof, including post-effective amendments, and all
exhibits and all material incorporated by reference in such Registration
Statement.
1. Exercise of Warrant.
1.1 Exercise. This Warrant may be exercised in full or in
part or not at all by the Holder hereof by surrender of this Warrant and the
subscription form annexed hereto (duly executed by such Holder), to the Company
at its principal office, accompanied by payment, in cash, or by certified or
official bank check payable to the order of the Company, in the amount obtained
by multiplying (a) the number of shares of Common Stock designated by the Holder
in the subscription form by (b) the Purchase Price.
1.2 Cashless Exercise. In lieu of paying the Purchase Price
in cash when exercising this Warrant, the Holder of this Warrant may elect to
receive shares equal to the value of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with notice of such election, in which event the Company shall issue to
the Holder hereof a number of shares of Common Stock computed using the
following formula:
<PAGE>
Y(A - B)
X = --------
A
Where
X -- The number of shares of Common Stock to be issued
to the Holder of this Warrant.
Y -- The number of shares of Common Stock purchasable
under this Warrant.
A -- The Fair Market Value of one share of the Company's
Common Stock.
B -- The Purchase Price (as adjusted to the date of such
calculations).
For purposes of this Section 1.2, the "Fair Market Value" of
the Common Stock shall mean the average of the closing bid price of the Common
Stock quoted in the over-the-counter market in which the Common Stock is traded
or the closing price quoted on any exchange on which the Common Stock is listed,
whichever is applicable, as published by Bloomberg Professional for the ten (10)
trading days prior to the date of determination of Fair Market Value (or such
shorter period of time during which such stock was traded over-the-counter or on
such exchange). If the Common Stock is not traded on the over-the-counter market
or on an exchange, the Fair Market Value shall be the price per share that the
Company could obtain from a willing buyer for shares of Common Stock sold by the
Company from authorized but unissued shares, as such prices shall be determined
in good faith by the Company's Board of Directors.
1.3 Trustee for Warrant Holders. In the event that a bank or
trust company shall have been appointed as trustee for the Holder of the
Warrant, such bank or trust company shall have all the powers and duties of a
warrant agent appointed pursuant to Section 9 and shall accept, in its own name
for the account of the Company or such successor person as may be entitled
thereto, all amounts otherwise payable to the Company or such successor, as the
case may be, on exercise of this Warrant pursuant to this Section 1. The Company
shall give the Holder of the Warrant notice of the appointment of any trustee
and any change thereof.
2. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of this Warrant, and in any event within ten (10)
days thereafter, the Company at its expense (including the payment by it of any
applicable issue or stamp taxes) will cause to be issued in the name of and
delivered to the Holder hereof, or as such Holder (upon payment by such Holder
of any applicable transfer taxes) may direct, a certificate or certificates for
the number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which such Holder shall be entitled on such exercise, in such
denominations as may be requested by such Holder. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
(or Other Securities) upon the exercise of this Warrant, nor shall it be
<PAGE>
required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of shares of Common Stock
(or Other Securities).
3. No Impairment. The Company will not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, or any other similar voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder of the Warrant against
impairment due to such event.
4. Piggyback Registration.
(a) If, at any time on or prior to the Expiration Date, the
Company proposes to file a registration statement in connection with a Public
Offering of any of its equity securities (other than a registration statement on
Form S-4 or Form S-8, or any form substituting therefor that is suitable for the
registration of the Registrable Shares under the Securities Act (a "Piggyback
Registration Statement")), then the Company shall in each case give written
notice (the "Piggyback Notice") of such proposed filing to all holders of
Registrable Shares still outstanding at least thirty (30) days before the
anticipated filing date of such Piggyback Registration Statement, which
Piggyback Notice shall offer the holders of Registrable Shares the opportunity
to include in such Piggyback Registration Statement such amount of Registrable
Shares as they may request. Each holder of Registrable Shares electing to have
its or his Registrable Shares registered pursuant to this Section 4(a) shall
advise the Company of such election in writing within twenty (20) days after the
date of receipt of the Piggyback Notice, specifying the amount of Registrable
Shares for which registration is requested (the "Piggyback Election"). Subject
to the rights of other stockholders, if any, having demand registration rights,
the Company shall include in any such Piggyback Registration Statement all
Registrable Shares so requested to be included; provided that the Company has
received the Piggyback Election and subject to limitations set forth in Section
4(b) below.
(b) Notwithstanding the foregoing, if the underwriter or
underwriters of any such proposed Public Offering shall be of the opinion that
the total amount or kind of securities held by the holders of Registrable Shares
and any other persons or entities entitled to be included in such Public
Offering would adversely affect the success of such Public Offering, then the
amount of securities to be offered for the accounts of holders of Registrable
Shares shall be reduced pro rata to the extent necessary to reduce the total
amount of securities to be included in such Public Offering to the amount
recommended by the underwriter or underwriters thereof, whereupon the Company
shall only be obligated to register such limited portion (which may be none) of
the Registrable Shares with respect to which such holder has provided a
Piggyback Election. In no event shall the Company be required pursuant to this
Section 4(b) to reduce the amount of securities proposed to be registered by it
for its own account.
<PAGE>
(c) No registration pursuant to a request or requests referred
to in this Section 4 shall be deemed to be a demand upon the Company for
registration under the Securities Act for all or part of the remaining
Registrable Shares (a "Demand Registration").
5. Restriction on Transfer. Any purported Transfer of this Warrant
shall be null and void and of no force or effect, and shall not be recognized by
the Company, unless such Transfer is effected pursuant to an effective
registration statement for such securities under the Securities Act or an
opinion of counsel satisfactory to the Company that registration is not required
under the Securities Act. "Transfer" shall mean any sale, assignment, transfer,
disposition, donation, pledge, bequest, hypothecation, gift, conveyance,
encumbrance or any other disposition or transfer of this Note or any interest or
rights (legal or equitable) therein by any means whatsoever, whether direct or
indirect, absolute or conditional, voluntary or involuntary, by operation of law
(including without limitation, by operation of the laws of descent and
distribution) or otherwise.
6. Merger, Consolidation or Sale. In case of any consolidation of the
Company with, or merger of the Company with, or into, or sale of the Company to,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
surviving corporation formed by such merger, consolidation or sale shall execute
and deliver to the Holder a supplemental warrant agreement providing that the
Holder shall have the right of such merger, consolidation or sale, to receive,
upon exercise of this Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such merger, consolidation or sale by a
Holder of the number of shares of Common Stock of the Company for which such
warrant might have been exercised immediately prior to such merger,
consolidation or sale. Such supplemental warrant agreement shall provide for
adjustments which shall be identical to the adjustments provided in Section 13
hereof. The foregoing provisions of this paragraph shall similarly apply to
successive mergers, consolidations or sales.
7. Register of Warrants. The Company shall maintain, at the principal
office of the Company (or such other office as it may designate by notice to the
Holder hereof), a register for the Warrants, in which the Company shall record
the name and address of the person in whose name a Warrant has been issued, as
well as the name and address of each transferee and each prior owner of such
Warrant.
8. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Warrant Agent. The Company may, by written notice to the registered
Holder of this Warrant, appoint an agent having an office in New York, New York,
for the purpose of issuing Common Stock (or Other Securities) on the exercise of
the Warrant pursuant to Section 1
<PAGE>
and replacing this Warrant pursuant to Section 8, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.
10. Remedies. The Company stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
11. Closing of Books. The Company will at no time close its transfer
books against the Transfer pursuant to Section 5 hereof of any Warrant or of any
shares of Common Stock (or Other Securities) issued or issuable upon the
exercise of any Warrant in any manner which interferes with the timely exercise
of this Warrant.
12. No Rights or Liabilities as a Stockholder. This Warrant shall not
entitle the Holder hereof to any voting rights or other rights as a stockholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the Holder hereof to purchase Common Stock (or Other Securities), and
no mere enumeration herein of the rights or privileges of the Holder hereof,
shall give rise to any liability of such Holder for the Purchase Price or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
13. Anti-Dilution Adjustments. In the event the Company (i) shall pay a
stock dividend or make a distribution to holders of Common Stock of the Company
in shares of Common Stock, (ii) shall subdivide its outstanding shares of Common
Stock, (iii) shall combine its outstanding shares of Common Stock into a smaller
number of shares, or (iv) shall issue by reclassification of its shares of
Common Stock any shares of capital stock of the Company, then additional shares
of Common Stock shall be issued (upon exercise of the Warrant) to the Holder
such that the number of shares owned by the Holder immediately after such action
shall bear the same relation to the total number of shares outstanding
immediately after such action as the number of shares owned by the Holder
immediately prior to such action bore to the total number of shares outstanding
immediately prior to such action. An adjustment made pursuant to this Section 13
shall become effective retroactively immediately after the record date in the
case of a dividend or distribution of Common Stock and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
14. Notices Generally. All notices and other communications from the
Company to the registered Holder of this Warrant shall be mailed by first class
registered or certified mail, postage prepaid, at the address for such Holder as
it appears on the books of the Company or its agent.
15. Miscellaneous. This Warrant and any term hereof may not be changed,
waived, discharged or terminated without the prior written consent of the
Company and the Holder. This
<PAGE>
Warrant shall be construed and enforced in accordance with and governed by the
Business Corporation Act of the State of New Jersey, and the Holder hereof
irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive.
The headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. This Warrant is being
executed as an instrument under seal. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
19th day of November, 1999.
DYNAMICWEB ENTERPRISES , INC.
[Corporate Seal] By: /s/ Steven L. Vanechanos, Jr.
------------------------------
Steven L. Vanechanos, Jr.
Chairman of the Board and
Chief Executive Officer
Attest:
By: /s/ Steve Vanechanos, Sr.
-------------------------------
Name: Steve Vanechanos, Sr.
Title: Sec/Treas
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
TO DYNAMICWEB ENTERPRISES, INC.
The undersigned, the Holder of the within Warrant, hereby irrevocably
elects to [CHECK APPLICABLE SUBSECTION]:
____ (a) Exercise the attached Warrant for, and to purchase thereunder,
___________ shares of Common Stock of DYNAMICWEB ENTERPRISES, INC. at
the Purchase Price of _______ per share, and herewith makes payment of
$____________ therefor in cash;
OR
____ (b) Exercise the attached Warrant for ________ shares of Common Stock of
DYNAMICWEB ENTERPRISES, INC. purchasable under the Warrant pursuant to
the cashless exercise provisions of Section 1.2 of such Warrant.
The undersigned hereby represents and warrants that the undersigned is
acquiring such shares for its own account for investment purposes only, and not
for resale or with a view to distribution of such shares or any part thereof.
WARRANT HOLDER:
By: ______________________________
Name:
(Signature and name must conform
to name of Holder as specified
on the face of the Warrant)
________________________________
________________________________
(Address)
________________________________
(Insert Social Security or Other
Identifying Number of Holder)
Dated: ____________, ____
<PAGE>
eB2B Commerce, Inc.
29 West 38th Street
New York, New York 10018
November 19, 1999
Steven L. Vanechanos, Jr.
Chief Executive Officer
DynamicWeb Enterprises, Inc.
271 Route 46 West
Building F, Suite 209
Fairfield, NJ 07004
Re: Amendment No. 1 to Loan Agreement
Dear Mr. Vanechanos:
This letter shall serve as Amendment No. 1 to the Loan Agreement (the
"Loan Agreement") between eB2B Commerce, Inc. ("eCom") and DynamicWeb
Enterprises, Inc. (the "Company"), dated November 12, 1999, by which the parties
set forth the terms upon which eCom will make certain loans to the Company.
Unless otherwise defined herein, the terms used in this Amendment No. 1
("Amendment") have the meanings assigned in the Loan Agreement.
1. Amendment of Section 2. The parties agree that Section 2 of the Loan
Agreement, captioned "Warrants," is hereby amended by deleting the first
sentence and replacing it with the following:
"As additional consideration for the loans by eCom, the Company shall
issue to eCom the following: (i) upon the execution of the Letter
Agreement, warrants to purchase 2,500,000 shares of the Company's Common
Stock, and (ii) on November 19, 1999 warrants to purchase an additional
5,000,000 shares of the Company's Common Stock ("Warrants")."
2. Agreement to Remain in Full Force and Effect. The parties agree that
except for the provisions of Section 1 of this Amendment, the Loan Agreement
shall remain in full force and effect.
THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK
<PAGE>
Please indicate your agreement to the terms set forth in this Amendment by
executing the enclosed copy of this Amendment.
Very truly yours,
eB2B Commerce, Inc.
By: /s/ Joseph Bentley
------------------------------------
Joseph Bentley
Chief Financial Officer
ACKNOWLEDGED AND AGREED TO:
This 19th day of November, 1999
DynamicWeb Enterprises, Inc.
By: /s/ Steven L. Vanechanos, Jr.
------------------------------------
Steven L. Vanechanos, Jr.
Chief Executive Officer
<PAGE>
WARRANT
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY
NOT BE MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT,
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT.
Right to Purchase up to 27,000
Shares of Common Stock of
DynamicWeb Enterprises, Inc.
No. 10019
DYNAMICWEB ENTERPRISES, INC.
Common Stock Purchase Warrant
DYNAMICWEB ENTERPRISES, INC., a New Jersey corporation (the "Company"),
hereby certifies that, for value received, Virtual'Ex, Inc., (the "Holder"), or
its successors or registered assigns, is entitled to purchase up to 27,000
shares of common stock, par value $.0001 per share (the "Common Stock"), of the
Company, at an exercise price of $2.9375 per share (the "Purchase Price"),
beginning on the date hereof and until the tenth anniversary of the date hereof
(the "Expiration Date"), at which time this Common Stock Purchase Warrant (the
"Warrant") shall expire and the Holder shall have no further rights hereunder;
provided that (1) the Holder agrees to enter into or execute a subscription
agreement in a form reasonably acceptable to the Company and (2) the Holder
meets the reasonable conditions and is subject to the reasonable terms
applicable to other purchasers of the Company's Common Stock.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include DynamicWeb Enterprises, Inc.
and any corporation that shall succeed to or assume the obligations of
DynamicWeb Enterprises, Inc. hereunder.
<PAGE>
(b) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other person
(corporate or otherwise), which stock or other securities the holder of the
Warrant at any time shall be entitled to receive, or shall have received,
on the exercise of the Warrant, in lieu of or in addition to Common Stock,
or which at any time shall be issuable or shall have been issued in exchange
for or in replacement of Common Stock or Other Securities.
(c) The term "Public Offering" refers to an underwritten public offering
of securities of the Company pursuant to an effective registration statement
under the Securities Act covering the offer and sale of such securities to the
public.
(d) The term "Registrable Shares" refers to the Common Stock issued upon
exercise of this Warrant and any shares of Common Stock issued thereon by way of
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular Registrable Share, once issued, it shall cease to be a Registrable
Share when (A) a registration statement with respect to the sale of such share
shall have become effective under the Securities Act and such share shall have
been disposed of in accordance with such registration statement; (B) it shall
become eligible to be disposed of pursuant to Rule 144 (or any successor
provision) under the Securities Act; (C) it shall have been otherwise
transferred, a new certificate for it not bearing a legend restricting further
transfer shall have been delivered by the Company and subsequent disposition of
it shall not require registration or qualification of it under the Securities
Act or similar state law then in effect; or (D) it shall have ceased to be
outstanding.
(e) The term "Registration Statement" refers to any registration
statement of the Company that covers any of the Registrable Shares pursuant
to the provisions of this Agreement, including the prospectus included therein,
any amendment or supplement thereof, including posteffective amendments, and
all exhibits and all material incorporated by reference in such Registration
Statement.
l. Exercise of Warrant.
1.1 Exercise. This Warrant may be exercised in full or in part or
not at all by the holder hereof by surrender of this Warrant and the
subscription form annexed hereto (duly executed by such holder), to the Company
at its principal office, accompanied by payment, in cash, or by certified or
official bank check payable to the order of the Company, in the amount obtained
by multiplying (a) the number of shares of Common Stock designated by the holder
in the subscription form by (b) the Purchase Price.
1.2 Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holder of the Warrant, such
bank or trust company shall have all the powers and duties of a warrant agent
appointed pursuant to Section 9 and shall accept, in its own name for the
account of the Company or such successor person as may be entitled thereto, all
amounts otherwise payable to the Company or such successor, as the case
<PAGE>
may be, on exercise of this Warrant pursuant to this Section 1. The Company
shall give the holder of the Warrant notice of the appointment of any trustee
and any change thereof.
2. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of this Warrant, and in any event within ten (10)
days thereafter, the Company at its expense (including the payment by it of any
applicable issue or stamp taxes) will cause to be issued in the name of and
delivered to the holder hereof, or as such holder (upon payment by such holder
of any applicable transfer taxes) may direct, a certificate or certificates for
the number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which such holder shall be entitled on such exercise, in such
denominations as may be requested by such holder. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
(or Other Securities) upon the exercise of this Warrant, nor shall it be
required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of shares of Common Stock
(or Other Securities).
3. No Impairment. The Company will not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, or any other similar voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of the Warrant against
impairment due to such event.
4.1 Piggyback Registration.
(a) If, at any time on or prior to the Expiration Date, the
Company proposes to file a registration statement in connection with a Public
Offering of any of its equity securities (other than (A) in connection with a
registration requested pursuant to Section 4.2 hereof, or (B) a registration
statement on Form S-4 or Form S-8, or any form substituting therefor that is
suitable for the registration of the Registrable Shares under the Securities Act
(a "Piggyback Registration Statement")), then the Company shall in each case
give written notice (the "Piggyback Notice") of such proposed filing to all
holders of Registrable Shares still outstanding at least thirty (30) days before
the anticipated filing date of such Piggyback Registration Statement, which
Piggyback Notice shall offer the holders of Registrable Shares the opportunity
to include in such Piggyback Registration Statement such amount of Registrable
Shares as they may request. Each holder of Registrable Shares electing to have
its or his Registrable Shares registered pursuant to this Section 4.1(a) shall
advise the Company of such election in writing within twenty (20) days after the
date of receipt of the Piggyback Notice, specifying the amount of Registrable
Shares for which registration is requested (the "Piggyback Election"). Subject
to the rights of other stockholders, if any, having demand registration rights,
the Company shall include in any such Piggyback Registration Statement all
Registrable Shares so requested to be included; provided that the Company has
received the Piggyback Election and subject to limitations set forth in Section
4.1(b) below.
<PAGE>
(b) Notwithstanding the foregoing, if the underwriter or
underwriters of any such proposed Public Offering shall be of the opinion that
the total amount or kind of securities held by the holders of Registrable Shares
and any other persons or entities entitled to be included in such Public
Offering would adversely affect the success of such Public Offering, then the
amount of securities to be offered for the accounts of holders of Registrable
Shares shall be reduced pro rata to the extent necessary to reduce the total
amount of securities to be included in such Public Offering to the amount
recommended by the underwriter or underwriters thereof, whereupon the Company
shall only be obligated to register such limited portion (which may be none) of
the Registrable Shares with respect to which such holder has provided a
Piggyback Election. In no event shall the Company be required pursuant to this
Section 4.1(b) to reduce the amount of securities proposed to be registered by
it for its own account.
(c) No registration pursuant to a request or requests referred to
in this Section 4.1 shall be deemed to be a Demand Registration (as hereinafter
defined).
4.2 Demand Registration.
(a) The holders of a majority of the number of Registrable Shares
shall have the right, on or after the date hereof and on or prior to the
Expiration Date, to make one (1) written demand upon the Company for
registration under the Securities Act of all or part of their remaining
Registrable Shares (a "Demand Registration"). Any such demand shall specify the
aggregate amount of Registrable Shares proposed to be sold and shall also
specify the intended method of disposition thereof. Within fifteen (15) business
days after receipt of such request, the Company shall give written notice (the
"Demand Notice") of such registration request to all other holders of
Registrable Shares and thereupon shall use its best efforts to register such
Registrable Shares (and any of the Company's other equity securities which may
be included therewith pursuant to Section 4.2(b) hereof) and shall include in
such registration all Registrable Shares with respect to which the Company has
received written requests for inclusion therein within ten (10) business days
after the receipt by the applicable holders of the Demand Notice; provided that
the Company shall have the right to delay the effectiveness of such Demand
Registration (A) for such reasonable period of time until the Company receives
or prepares financial statements for the fiscal period most recently ended prior
to such written request, if necessary to avoid the use of stale financial
statements, or (B) if the Company would be required to divulge in such
Registration Statement the existence of any fact relating to a material business
situation, transaction or negotiation not otherwise required to be disclosed or
if the Board of Directors of the Company shall determine in good faith that the
registration to be effected would not be in the best interests of the Company,
in which case the Company shall have the right to delay such filing for a period
of no longer than one hundred twenty (120) days. The Company shall not be
required to effect more than one (1) registration pursuant to this Section 4.2.
(b) The Company shall have the right to include any of its
equity securities in a Demand Registration and in such a case shall include in
the Demand Notice given to all holders of Registrable Shares a statement of the
type and amount of equity securities that are to be so included.
<PAGE>
(c) If the holders of a majority of the number of Registrable
Shares to be registered in a Demand Registration so elect, the offering of
Registrable Shares pursuant to such Demand Registration shall be in the form of
an underwritten offering. In such event, if the underwriters of such offering
advise the Company and such holders in writing that in their opinion the amount
of Registrable Shares and other equity securities of the Company to be included
in such offering pursuant to Section 4.2(b) hereof would adversely affect the
success of such registration, then the Company shall include only the amount of
its securities in such Demand Registration as would not have such adverse
effect. If the underwriters then determine that the amount of Registrable Shares
would adversely affect the success of such offering, the Company shall include
in such Demand Registration, on behalf of such holders, an amount of Registrable
Shares equal to the total amount that in the opinion of such underwriter or
underwriters, can be sold without any such adverse effect, and such securities
shall be allocated pro rata among all demanding holders of Registrable Shares.
(d) A registration will not be considered a Demand Registration
unless it has been kept effective for a period of one hundred twenty (120) days
following the date on which such Registration Statement was declared effective,
except that the registration of a firm commitment underwriting need not be
maintained after the completion of the offering.
5. Transfer of Warrant. Prior to the Expiration Date and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable by the holders hereof, in whole or in part, at the principal office
of the Company. Any such transfer shall be made upon surrender of this Warrant
together with the Assignment Form attached hereto properly executed, endorsed
and guaranteed. Notwithstanding the foregoing, the Company may prohibit the
transfer of this Warrant if such transfer is not in compliance with applicable
laws.
6. Merger, Consolidation or Sale. In case of any consolidation of the
Company with, or merger of the Company with, or into, or sale of the Company to,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
surviving corporation formed by such merger, consolidation or sale shall execute
and deliver to the Holder a supplemental warrant agreement providing that the
holder shall have the right of such merger, consolidation or sale, to receive,
upon exercise of this Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such merger, consolidation or sale by a
holder of the number of shares of Common Stock of the Company for which such
warrant might have been exercised immediately prior to such merger,
consolidation or sale. Such supplemental warrant agreement shall provide for
adjustments which shall be identical to the adjustments provided in Section 13
hereof. The foregoing provisions of this paragraph shall similarly apply to
successive mergers, consolidations or sales.
7. Register of Warrants. The Company shall maintain, at the principal
office of the Company (or such other office as it may designate by notice to the
holder hereof), a register for the Warrants, in which the Company shall record
the name and address of the person in whose name a Warrant has been issued, as
well as the name and address of each transferee and each prior owner of such
Warrant.
<PAGE>
8. Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Warrant Agent. The Company may, by written notice to the registered
holder of this Warrant, appoint an agent having an office in New York, New York,
for the purpose of issuing Common Stock (or Other Securities) on the exercise of
the Warrant pursuant to Section 1 and replacing this Warrant pursuant to Section
8, or any of the foregoing, and thereafter any such issuance, exchange or
replacement, as the case may be, shall be made at such office by such agent.
10. Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
11. Closing of Books. The Company will at no time close its transfer
books against the transfer of any Warrant or of any shares of Common Stock (or
Other Securities) issued or issuable upon the exercise of any Warrant in any
manner which interferes with the timely exercise of this Warrant.
12. No Rights or Liabilities as a Stockholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a stockholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Common Stock (or Other Securities), and
no mere enumeration herein of the rights or privileges of the holder hereof,
shall give rise to any liability of such holder for the Purchase Price or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
13. Anti-Dilution Adjustments. In the event the Company (i) shall pay a
stock dividend or make a distribution to holders of Common Stock of the Company
in shares of Common Stock, (ii) shall subdivide its outstanding shares of Common
Stock, (iii) shall combine its outstanding shares of Common Stock into a smaller
number of shares or (iv) shall issue by reclassification of its shares of Common
Stock any shares of capital stock of the Company, then additional shares of
Common Stock shall be issued (upon exercise of the Warrant) to the Holder such
that the number of shares owned by the Holder immediately after such action
shall bear the same relation to the total number of shares outstanding
immediately after such action as the number of shares owned by the Holder
immediately prior to such action bore to the total number of shares outstanding
immediately prior to such action. An adjustment made pursuant to this Section 13
shall become effective retroactively immediately after the record date in the
case of a
<PAGE>
dividend or distribution of Common Stock and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
14. Notices Generally. All notices and other communications from the
Company to the registered holder of this Warrant shall be mailed by first class
registered or certified mail, postage prepaid, at the address for such holder as
it appears on the books of the Company or its agent.
15. Miscellaneous. This Warrant and any term hereof may not be changed,
waived, discharged or terminated without the prior written consent of the
Company and the Holder. This Warrant shall be construed and enforced in
accordance with and governed by the Business Corporation Act of the State of New
Jersey. The headings in this Warrant are for purposes of reference only, and
shall not limit or otherwise affect any of the terms hereof. This Warrant is
being executed as an instrument under seal. The invalidity or unenforceability
of any provision hereof shall in no way affect the validity or enforceability of
any other provision.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
19th day of November, 1999.
DYNAMICWEB ENTERPRISES, INC.
By: /s/ STEVEN L. VANECHANOS, JR.
-----------------------------
[Corporate Seal] Name: Steven L. Vanechanos,
Title: Chairman of the Board and
Chief Executive Officer
Attest:
BY: /s/ NINA PESCATORE
---------------------------
Name: Nina Pescatore
Title: Controller
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
TO DYNAMICWEB ENTERPRISES, INC.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder,
shares of Common Stock of DYNAMICWEB ENTERPRISES, INC. and herewith makes
payment of $ therefor in cash, and requests that the
certificates for such shares be issued in the name of, and delivered to,
Virtual'Ex, Inc. whose address is 418 North Union Street, Alexandria, VA 22314.
Dated:
----------,-------- -------------------------------
(Signature must conform to name
of holder as specified on the
face of the Warrant)
-------------------------------
-------------------------------
(Address)
-------------------------------
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto the right represented by the within Warrant to
purchase shares of Common Stock of DYNANICWEB ENTERPRISES, INC.
to which the within Warrant relates, and appoints Attorney
to transfer such right on the books of DYNAMICWEB ENTERPRISES, INC. with full
power of substitution in the premises.
Dated:
------------------,------- -------------------------------
(Signature must conform to name
of holder as specified on the
face of the Warrant)
-------------------------------
-------------------------------
(Address)
Signed in the presence of:
- -------------------------------
<PAGE>
SETTLEMENT AGREEMENT
This agreement (the "Settlement Agreement") is entered into this 23rd
day of November, 1999 by DynamicWeb Enterprises, Inc. and VIRTUAL'EX, Inc.
VIRTUAL'EX, Inc. is a corporation located in Alexandria, Virginia. DynamicWeb
Enterprises, Inc. is a corporation located in Fairfield, New Jersey.
WHEREAS; DynamicWeb Enterprises, Inc. and VIRTUAL'EX, Inc. entered
into that certain Business Consulting Agreement dated November 30, 1997 (the
"Agreement"); and
WHEREAS; VIRTUAL'EX, Inc. has expressed a position that it is entitled
to compensation from DynamicWeb Enterprises, Inc. as a result of the Agreement,
and;
WHEREAS; DynamicWeb Enterprises, Inc. has taken a position that
compensation is not due VIRTUAL'EX, Inc. and that there is no business
relationship in existence, and;
WHEREAS; both parties choose to avoid arbitration or litigation of
their respective claims, to an uncertain result, and;
WHEREAS; both parties have agreed upon an alternate means of resolving
their differences without costly and time consuming effort and without admission
of fault or liability.
NOW, THEREFORE, IT IS RES0LVED by the parties executing this
instrument that their claims and respective entitlement shall be decided as
follows:
1. DynamicWeb Enterprises, Inc. will pay, upon execution of this
instrument, to VIRTUAL'EX, Inc., the sum of $8,500.
2. DynamicWeb Enterprises, Inc. will make a further payment of $8,500.
to VIRTUAL'EX, Inc., on or before December 15, 1999. A grace period without
penalty or default, not to exceed 30 days from said date, is agreed.
<PAGE>
3. Upon execution of this Settlement Agreement, DynamicWeb
Enterprises, Inc. will deliver a fully-executed Common Stock Purchase Warrant in
the form attached hereto as Exhibit A (the "Warrant") for the purchase of
27,000 shares of DynamicWeb Enterprises, Inc. common stock, to VIRTUAL'EX, Inc.
4. (a) Except as to (i) obligations arising under this Settlement
Agreement, and (ii) obligations arising under or relating to the Warrant,
VIRTUAL'EX, Inc. for itself and its officers, directors, shareholders,
employees, successors, assigns, agents, attorneys, and representatives, hereby
forever and irrevocably releases, remises, discharges, and acquits DynamicWeb
Enterprises, Inc. and its officers, directors, shareholders, employees,
successors, assigns, agents, attorneys, and representatives, from any and all
claims, actions, causes of action, demand rights, damages and costs of
whatsoever kind or nature, whether at law, in equity, or mixed, related to or
arising from any events, acts or omissions that occurred at any time prior to
the date of this Settlement Agreement and that are related to or arise from the
Agreement.
4. (b) Except as to obligations arising under this Settlement
Agreement, DynamicWeb Enterprises, Inc., for itself and its officers, directors,
shareholders, employees, successors, assigns, agents, attorneys, and
representatives, hereby forever and irrevocably releases, remises, discharges,
and acquits VIRTUAL'EX, Inc. and its officers, directors, shareholders,
employees, successors, assigns, agents, attorneys, and representatives, from any
and all claims, actions, causes of action, demands, rights, damages and costs of
whatsoever kind or nature, whether at law, in equity, or mixed, related to or
arising from any events, acts or omissions that occurred at any time prior to
the date of this Settlement Agreement and that are related to or arise from the
Agreement.
<PAGE>
5. DynamicWeb Enterprises, Inc. hereby releases all right, title, and
Interest in that certain VIRTUAL'EX, Inc. Business Plan dated September 5, 1997
(the "Plan"), and VIRTUAL'EX, Inc. shall have the exclusive right, title, and
interest in the Plan. DynamicWeb Enterprises, Inc. agrees that VIRTUAL'EX may
use the Plan for any and all purposes in VIRTUAL'EX, Inc.'s sole discretion.
6. Both parties agree that all claims against the other are merged
into and eliminated by the completion of the respective performances stated
herein and that this Settlement Agreement and the Warrant constitute an entire
agreement between the parties.
lN WITNESS WHEREOF; each of the corporate entities has caused this
document to be signed by proper party and acknowledged in their respective
jurisdiction this 23rd day of November, 1999.
DYNAMICWEB ENTERPRISES, INC. ATTEST:
/s/ STEVE VANECHANOS, JR. /s/ STEVE VANECHANOS, SR.
- -------------------------------- ------------------------------
By: Steve Vanechanos, Jr. CEO Secretary
VIRTUAL'EX, INC. ATTEST:
/s/ JOHN BLY
- --------------------------------- -------------------------------
By: John Bly, President Secretary
STATE OF NEW JERSEY, COUNTY OF ESSEX} ss:
BE IT REMEMBERED, that on this day of November, 1999, before me,
the subscriber, , personally appeared ,
who, being by me duly sworn on (his/her) oath, deposes and makes proof to my
satisfaction, that (he/she) is the Secretary of DynamicWeb Enterprises, Inc.,
the Corporation named in the within Instrument; that James Conners is the
President of said Corporation; that the execution, as well as the making of this
Instrument, has been duly authorized by a proper resolution of the Board of
<PAGE>
Directors of the said Corporation; that deponent well knows the corporate seal
of said Corporation; and that the seal affixed to said Instrument is the proper
corporate seal and was thereto affixed and said Instrument signed and delivered
by said President as and for the voluntary act and deed of said Corporation, in
the presence of deponent, who thereupon subscribed (his/her) name thereto as
attesting witness.
Sworn to and subscribed before
me, the date aforesaid.
/s/ NINA ANN PESCATORE /s/ STEVE VANECHANOS, SR.
- --------------------------- -------------------------------
Secretary
STATE OF VIRGINIA, COUNTY OF } SS:
BE IT REMEMBERED, that on this day of November, 1999, before me,
the subscriber, personally appeared ,
who, being by me duly sworn on (his/her) oath, deposes and makes proof to my
satisfaction, that (he/she) is the Secretary of VIRTUAL'EX, Inc., the
Corporation named in the within Instrument; that John Bly is the President of
said Corporation; that the execution, as well as the making of this Instrument,
has been duly authorized by a proper resolution of the Board of Directors of the
said Corporation; that deponent well knows the corporate seal of said
Corporation; and that the seal affixed to said Instrument is the proper
corporate seal and was thereto affixed and said Instrument signed and delivered
by said President as and for the voluntary act and deed of said Corporation, in
the presence of deponent, who thereupon subscribed (his/her) name thereto as
attesting witness.
Sworn to and subscribed before
me, the date aforesaid.
- ------------------------ -------------------------------
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 418,000
<SECURITIES> 0
<RECEIVABLES> 729,000
<ALLOWANCES> (102,000)
<INVENTORY> 0
<CURRENT-ASSETS> 1,085,000
<PP&E> 667,000
<DEPRECIATION> (208,000)
<TOTAL-ASSETS> 2,133,000
<CURRENT-LIABILITIES> 840,000
<BONDS> 0
0
2,137,000
<COMMON> 0
<OTHER-SE> (868,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,133,000
<SALES> 3,045,000
<TOTAL-REVENUES> 3,045,000
<CGS> 1,790,000
<TOTAL-COSTS> 4,048,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,000
<INCOME-PRETAX> (2,766,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,766,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,766,000)
<EPS-BASIC> (1.81)
<EPS-DILUTED> (1.81)
</TABLE>
